mean the Canadian agribusiness sector can find expansion opportunities in the service portion of their business. Crop in
FCC Ag Economics
2017 Economic Outlook for Agribusiness January 2017
FCC Ag Economics helps you make sense of the uncertainty created by a rapidly changing world. This outlook describes the expected impact of the most important trends on Canada’s agribusiness sector in 2017: the Canadian dollar, investment and interest rates, the global economy, energy and commodity prices.
2017 outlook for the agribusiness sector The Canadian agribusiness sector will face a combination of challenges and opportunities in 2017, but profitability is expected to be positive, and relatively unchanged from 2016. Soft agriculture commodity prices will challenge the growth of Canadian producers’ demand for equipment and inputs, resulting in a relatively soft farm equipment market and stable crop input sector. At the same time, muted world economic growth and an average oil price around US$50 per barrel will support a US$0.75 Canadian dollar and provide potential export opportunities for some businesses. A weak Canadian economy will help to keep borrowing costs low.
How does this outlook affect your bottom line in 2017? Here are our suggestions for how the agribusiness sector can improve performance in 2017. That soft farm equipment market and stable crop input sector mean the Canadian agribusiness sector can find expansion opportunities in the service portion of their business. Crop input companies can support producers with insights to optimize their input use and profits, while farm equipment businesses can look to their service divisions (e.g., mechanical, management and IT) to add value.
Here’s how the top trends will impact the agribusiness sector The global economy: muted growth in 2017 will limit agribusiness market opportunities Demand for food, feed and non-food uses of agriculture commodities will remain strong, but without an additional boost in 2017. Muted economic growth will result in few changes from the world market opportunities Canadian equipment manufacturers and input suppliers witnessed in 2016. The world’s supply of agricultural commodities will continue to outpace global demand, offering limited potential to increase commodity prices. This will result in lower demand for fertilizer and pest control products, and smaller investment in new equipment and farm improvements.
Energy prices: oil prices will stabilize Low world growth is expected to keep demand for oil relatively stable. West Texas Intermediate (WTI) is currently forecast to trade at US$50 per barrel in 2017, but it’s uncertain if this price forecast will hold. Price increases would occur if the global oil supply were reduced, a development that would only happen with a sustained commitment to cut production by OPEC (Organisation of the Petroleum Exporting Countries) and non-OPEC producers. Assuming oil stabilizes at US$50 per barrel, we forecast farm gasoline to average between CA$0.85 and CA$0.88 per litre in Alberta. Farm diesel is forecast to average CA$0.86 and CA$0.90 per litre, with fluctuations throughout the year due to seasonal fluctuations in consumption patterns. Fuel price trends in each province are projected to climb by around 5% on average.
Muted world economic growth will limit demand growth for coal and natural gas in 2017. Urea is forecast to average in Alberta between CA$470 and CA$480 per tonne in 2017, which compares to an average near CA$520 per tonne in 2016. Any fluctuations in fertilizer prices will be driven more by seasonal fluctuations in demand. Stability across energy prices will also reduce inflationary pressures in pest control products and the transportation of products. At the same time, there seems to be few risks of seeing the Canadian market disrupted by cheaper imports in early 2017, which would trigger a devaluation of current inventories of fertilizers.
A US$0.75 Canadian dollar will support agribusiness exports The Canadian dollar is forecast to trade near US$0.75 throughout 2017, based on a stronger U.S. economy and oil prices projected to trend near US$50 per barrel. The lower dollar will give Canadian manufacturers a competitive advantage in the domestic market. A US$0.75 loonie will also support agribusinesses exporting to the U.S. In 2015, Canada exported nearly CA$4.0 billion worth of agribusiness products1. Of that, 91% went to the U.S. In 2016, total agribusiness exports declined 5.0% due to a more challenging U.S. farm economy that reduced overall demand. In 2015, Canada imported CA$8.2 billion worth of agribusiness products. CA$5.6 billion of that total was from the U.S.
Weaker commodity prices will impact demand for inputs and equipment in 2017
Planting intentions will likely favour the more profitable oilseed and pulse crops in 2017. More soybean and pulse acres will require less fertilizer, as was the case in 2016. The Canadian retail fertilizer market is forecast to remain unchanged from 2016 with total retail sales estimated around CA$4.7 billion. The retail pesticide market is expected to expand roughly 3% to over CA$2.8 billion in 2017. Marginal growth in livestock and crop receipts is expected to result in small investments in machinery and equipment throughout North America. Total equipment sales in Canada are projected to grow roughly 10% in 2017 on improvements in the overall Canadian economy. They should remain softer than the most recent 5-year average, however.
Canada’s business investment environment to remain favourable in 2017 Borrowing costs for businesses are expected to move slightly higher in 2017. The U.S. Federal Reserve will likely increase its key rate in 2017 which will result in higher bond yields and a higher cost of funds for lending institutions. Domestically, inflationary pressures will remain within the Bank of Canada’s targeted range (1.0% to 3.0%) which will continue to support Canada’s current low short-term rates. Overall, interest rates in Canada are expected to remain historically low through 2017 and will support agribusinesses looking to expand or make improvements. Curious about the impact of 2017’s top trends on the grains and oilseeds, livestock and food processing sectors? Ask for a copy of each of these Outlooks – they’re available for a limited time only through your FCC Relationship Manager. And be sure to check out FCC Ag Economics for more great insights. You can also join the conversation on Twitter using #AgEconomics.
Large global increases in grains and oilseeds production, proteins and dairy have pushed agriculture commodity prices significantly lower than their 5-year average, as overall demand has not expanded enough to offset the increased supply. Agriculture commodity prices are expected to remain soft in 2017 and producers are expected to respond by reducing overall production costs.
Agribusiness products are defined as NAICS codes 3253 (pesticides, fertilizer, and other agricultural chemical manufacturing) and 33311 (agricultural equipment manufacturing)
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Learn more about the economic events that could impact our industry and your bottom line. Our team of economists and researchers share their unique perspectives in the reports, videos, blogs and articles available on our website. fcc.ca/AgEconomist
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