TORONTO, ONTARIO--(Marketwired - Feb. 7, 2014) - According to a BMO Economics Agriculture Report, released today, the Canadian livestock industry is set to benefit from a variety of factors this year, including lower feed costs, the weaker loonie and expected stronger economic growth on both sides of the border.
"Between the bovine spongiform encephalitis (BSE) crisis, fluctuating feed prices, the global recession, and the longer-term appreciation of the loonie, Canadian hog and cattle producers have faced almost every conceivable challenge over the past decade or so," said Aaron Goertzen, Economist, BMO Capital Markets. "Fortunately, the pendulum has finally started to swing in the other direction, which has positioned the industry for a long-awaited rebound in margins and profitability."
Growing Conditions and Livestock Pricing
- According to BMO Economics, better growing conditions in the United States and a bumper crop in Canada have yielded a sharp drop in feed prices, providing producers with a much-needed boost to their margins.
- Livestock producers can likely also look forward to soybean prices retreating further as farmers devote more acreage to the crop.
- Other feed crops, such as corn, are now relatively well-stockpiled, which should prevent the prices of those crops from rising excessively as farmers shift their acreage toward soybeans.
- Key feed crop prices have fallen by approximately one-third over the past year (Ontario corn prices were down 35 per cent, and Alberta barley prices were down by 28 per cent), which has helped boost livestock producers' bottom lines.
"The livestock sector, and agriculture overall, are key drivers of the Canadian economy," said David Rinneard, Vice President, Agribusiness and Agriculture, BMO Bank of Montreal. "Based on conversations with clients, we're expecting 2014 to be an improved year for livestock producers. With margins stabilizing at a more favourable level than in previous years, we believe this will help support higher returns for their agricultural products."
- Although livestock herds have declined significantly since the mid-2000s, a more favourable industry environment is now leading producers to resume expansion, which is applying upward pressure on livestock prices as animals are retained for breeding.
Effects of the Loonie
- The weaker Canadian dollar has helped widen producers' profit margins. "With the loonie projected to remain in the US$0.87–$0.95 range through the end of 2015, the currency should continue to weigh less on earnings than it has over the past few years," Mr. Goertzen added.
- Livestock producers should also benefit from more robust economic growth in North America, as economic headwinds last year – particularly in the United States – appear to be easing.
Mr. Goertzen added that Canada's trade negotiations also bore fruit for livestock producers last year; officials announced an agreement-in-principle on the Comprehensive Economic and Trade Agreement, which will further open the European market to Canadian beef and pork products, but is not expected to take effect until 2015 at the earliest.
Regional Operating Revenue by Farm Type in 2012
|Beef Cattle Ranching
|Hog & Pig Farming
About BMO and the Agricultural Community
BMO's roots in the Canadian agricultural sector date back to 1817, when the Bank first began working with farmers to support and expand the agricultural industry which has become a key driver of Canada's economy. Today, BMO provides customized loan and deposit solutions to Canada's agri-business owners, the single largest core commercial sector that the bank serves.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $537 billion as at October 31, 2013, and more than 45,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.