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Economist forecasts livestock prices to remain high, other crop prices in check

11/06/2014 06:03 EST | Updated 01/06/2015 05:59 EST
EDMONTON - Canadian livestock producers will continue to see strong prices in 2015, but remaining supplies from global bumper harvests will keep crop returns in check, says a report by TD Economics.

The forecast for the agriculture sector notes that farmers are coming off a year in which prices for most major crops hit four-year lows, while tight supplies drove cattle and hog prices to record levels.

Economist Dina Ignjatovic said the tale of two contrasting markets is to continue.

"Livestock prices are going to remain quite elevated for some time still and the opposite is happening in the crop markets," she said Thursday from Toronto.

"We don't expect to see huge declines going forward — maybe a little bit further weakness throughout the end of this year and early next year — but we do expect prices to bottom, and then there will be a little upside."

The report notes that cattle prices are more than double the 10-year average before the recession hit, due in part to U.S. producers reducing their herds during a drought in 2011-2012.

Cattle exports to the United States were up 12 per cent this year following an increase of nearly 30 per cent the year before.

Ignjatovic said Canadian cattle inventories are at a 21-year low and there's no indication that producers are building up their herds.

"Many farmers are taking advantage of the high prices and selling their animals rather than keeping them to breed,'' the report says.

The spike in hog prices is attributed to the porcine epidemic diarrhea (PED) virus outbreak that killed millions of baby pigs in the U.S. The virus has also been found on some farms in Manitoba, Ontario, Quebec and Prince Edward Island.

Prices peaked in July and, while they have since dropped somewhat, they remain about 60 per cent higher then the 10-year average before the outbreak became a problem.

While hog inventories have not fully recovered in the U.S., the size of the Canadian herd is up by one per cent.

In Canada, wheat, canola, barley and corn output this year is expected to drop significantly from the 2013 bumper crop, but still be larger than usual. The main exception is soybeans: output is expected to be 11 per cent higher than last year.

The report says huge global supplies and low prices will affect planting decisions and most crop prices won't rebound quickly.

"We suspect that crop prices have a little more room to fall," the report says. "Barring any major weather disruptions, prices are likely to bottom by mid-2015 before beginning to recover."

The report notes that measures the federal government took this year to sort out a railway grain transportation backlog helped increase grain shipments, but also led to a big increase in exports to the U.S.

The amount of Canadian wheat sent south was up by about 40 per cent, while canola exports shot up by 128 per cent.

Ignjatovic said the federal government has not given any indication that it will extend rules that require the two big railways to each ship a minimum of 500,000 tonnes of grain a week when the legislation expires at the end of the month.

So what do all of these factors mean to the bottom line of Canadian farmers?

Livestock producers are expected to continue riding high, but other farmers, not so much.

Despite the slide in crop prices this year, the quantity of crops sold will probably be higher. That, coupled with a weaker loonie, could mean that farm net incomes may come in close to last year's levels, Ignjatovic suggested.

Next year could be a different story.

"In 2015, however, lower average prices nearly across the board, along with less output — some of which is lower quality — are likely to put a dent in farm cash receipts."

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