KAP president skeptical | Doug Chorney fears outlook is ‘overly optimistic’
Canadian farmers generated near-record income in 2013 and are expected to have another terrific year in 2014, according to Agriculture Canada.
Aggregate net cash income for 2013 is projected to be $13.23 billion, just shy of the historical peak of $13.35 billion set in 2012.
Average net operating income on a farm level is forecast to be an all-time high of $68,498.
Record production helped offset falling prices toward the end of the year, and farmers saw “robust hog and cattle prices” because of low North American supplies.
The outlook for 2014 is for continued prosperity in the farm economy. Aggregate net cash income is expected to drop five percent to $12.56 billion but that would still be 23 percent above the 2008-12 average.
Crop prices are expected to be lower than they were last year, but farmers will have a lot of grain from the 2013 harvest to market throughout 2014.
“Total livestock receipts will not change significantly in 2014, but cattle and hog farms will continue to see tight markets and higher prices,” Agriculture Canada said in the executive summary of its farm income forecast report.
Humphrey Banack, vice-president of the Canadian Federation of Agriculture, has no problem with the robust farm income forecasts.
Crop prices plummeted after harvest but that doesn’t mean a lot of grain is being sold at those values.
“There is a fair number of producers that have priced product at higher levels than they are today,” he said. “If we were to take the entire crop and price it at today’s markets, you would see (farm income) substantially lower.”
Banack said fall calves are fetching $1,000 to $1,200 per animal, the finished price of beef is almost at record highs and cow and slaughter prices are good. Pork prices were strong through much of last year.
He agreed this year’s bountiful harvest will offset lower prices in 2014.
“Grain income kind of lags one year. I would see some challenges in 2015,” he said.
Doug Chorney, president of Keystone Agricultural Producers, also has no qualms with the 2013 forecast, but he wonders about the 2014 outlook.
“ ‘I hope they’re right’ would be my first response, but I am fearful that (forecast) is overly optimistic,” he said.
Chorney worries about what is going to happen to quality because plenty of crop is being stored in bags and other forms of what was supposed to be temporary storage.
“When the weather warms up, if we don’t move this grain we’re going to have a real potential problem with risk of insect and spoilage damage.”
Chorney believes the reduction in commodity prices will weigh more heavily on farm incomes than does the increased amount of grain that farmers have to sell.
“I think a five percent decline (in farm income) is really overly optimistic. I think it’s going to be greater than that,” he said.
Agriculture Canada also released a 20-year outlook for Canadian agriculture.
The outlook projects an increase in grain and oilseed prices from today’s depressed values. Rising global demand will boost prices much higher than pre-2007 levels, and any significant drought or flood could cause another bull run.
Canola production is expected to continue expanding to accommodate a larger Canadian crushing industry, but the global growth in demand for cereal grain will cap oilseed expansion.
Cattle and hog prices are expected to “remain at higher levels” over the next 20 years. As well, livestock producers will experience relief from the sky-high crop prices of the last couple of years.
Hog and cattle exports are expected to benefit from further revision of U.S. country-of-origin labelling in 2015, although slaughter hog and weanling exports will not return to historically high levels.
Chorney doesn’t know how much faith to put in the medium-term outlook, considering that last year around this time Agriculture Canada was predicting that commodity prices would remain robust for the next 10 years.
“That’s how accurate they are. One year later, it’s a complete change.”
However, he did recently hear a presentation from an economist at the CropConnect conference in Winnipeg who was forecasting a big rebound in crop prices by the end of this year.
“I want to believe (the Agriculture Canada forecast). I’m a typical farmer. Before seeding I’ve got the world by the tail. I’m optimistic that we’re going to have good times ahead.”
However, his usual enthusiasm has been tempered by the massive de-cline in crop prices witnessed this winter.
“My own psyche as a businessperson has been kind of rattled and I’m hearing that from all our members,” said Chorney.
“People are shell-shocked by what has happened this winter. You can issue all kinds of projections and reports, but the reality is I talked to a farmer in Swan River last week who was offered $3.89 a bushel for No. 1 red spring wheat. He’s pissed off.”
Banack is optimistic about the future because of the ever-expanding world population and growing middle class, but another important factor needs to be included in the medium-term outlook.
“A great crop across Kazakhstan and Russia can fully decimate a wheat market,” he said. “The markets we play in are volatile, and we’re going to continue to see that volatility.”