Yields to take tumble in Western Canada

Growing conditions and harvest production trends are swinging widely this year across Canada, which has affected the national economy, the Bank of Montreal says in its annual harvest report.

According to the report, Ontario is experiencing record corn and soybean production, while the Prairies are seeing crop yields for corn, soybeans, wheat and canola come in below trend for a second straight year.

“Ontario corn and soybean yields in 2018 are expected to come in significantly above long-term production averages and easily break previous yield records,” said Adam Vervoort, national director of agriculture banking at BMO Financial Group.

“We’re looking at more than five percent increase over our long-term (five-year) average.”

Meanwhile, crop yields throughout Western Canada are significantly down.

“For the Prairies, we do expect to see in crop yields approximately six percent off longer-term historical averages.”

The report said American crop yields are expected to be above trend for the sixth year in a row, this year coming in 16 percent above trend.

As a result, supply continues to be a headwind for pricing.

“While we have seen (global crop) demand increase significantly over the last decade, excess supply, particularly in the U.S. will continue to put downward pressure on prices,” he said.

“Strong wheat production has put downward pressure on wheat prices, and another large soybean crop in the U.S., coupled with trade disputes between the U.S. and some of its trading partners, are definitely putting downward pressure on prices, which inevitably impacts the prices that we’re able to receive here as well.”

However, the report said a low loonie is insulating Canadian farmers from lower prices, which Vervoort noted will continue hovering for the foreseeable future below 80 cents.

“We’ve been floating between about 76.5 and 78.5 for the last few months. Our economics group does look at that on a regular basis, and they’re not predicting any significant shifts in the immediate future,” he said.

“Given the current exchange rate, we are insulated from some of the price pressure that producers in the U.S. are experiencing right now.”

Interest rates are still at historically low levels, but they, as well as wage increases, weigh on the cash flow and profitability of farming operations.

“The recent increase in interest rates last week should get producers talking to their banker, accountant and any other financial advisers that they may have to talk about longer-term interest rate risk management strategies, such as locking in a loan for a longer term,” he said Oct. 31.

He said the agriculture sector is important to the Canadian economy, and the bank will look for ways to help farmers, particularly young producers.

“Back about a month ago, we launched the BMO young farmers program,” Vervoort said.

“They can borrow up to $1 million with lower down payment requirements when compared to conventional financing.”

As well, BMO recently launched a relief program for western Canadian crop farmers negatively affected by excess moisture this fall.

“That relief program is similar to some other ones that we’ve run in the past that relate to weather challenges and on rail strikes,” he said.

“Primarily it gives us the opportunity to look at adjusting the timing of loan payments to provide operators with an ability to get back on their feet after a tough crop year — so deferring principal payments and waiving fees.”

However, in spite of the current challenges that producers face, Vervoort said the long-term outlook for the industry in Western Canada remains positive.

“It’s an incredibly resilient industry that always manages to deal with change,” he said.

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