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BMO Bank of Montreal

October 20, 2010 14:13 ET

BMO Reports Canadian Agri Sector Set to Rebound

Consumers Will Not Have to Stomach Big Increases in Food Prices

TORONTO, ONTARIO--(Marketwire - Oct. 20, 2010) - Agricultural production in Canada is poised to strengthen over the next few years. While rising prices are expected to provide the boost for increased agricultural production, it is unlikely that consumers will have to relive the soaring food prices of 2008, according to a new report from BMO Capital Markets and BMO Bank of Montreal.

Agriculture Outlook

"The sector should experience growth at annual rates in the 2 per cent to 2.5 per cent range over the next few years," said Kenrick Jordan, Senior Economist, BMO Capital Markets. "The price of grains and oilseeds should be constructive for crop production over the medium term. While the prices of these commodities have fallen from the lofty levels of 2008, they should increase given strong demand from developing countries, continuing expansion of the biofuels industry globally, and tightening resource constraints."

Meanwhile, demand for meat is also expected to grow at a brisk rate, as expanding populations in fast-growth developing countries broaden and enrich their diets with increases in income, a positive development for the livestock sub-sector. "Agricultural production will be supported by the growing demand by advanced-country consumers for products that incorporate an increasingly diverse set of attributes in agri-food products," said Mr. Jordan. "Such attributes, related to nutrition and health, environmental sustainability and food safety, offer scope to boost value-added in the sector."

Impact on Business and Consumers

While agricultural commodity prices are expected to rise, Mr. Jordan does not anticipate that this would lead to significantly higher retail food prices. Canadian retail prices are expected to increase by 2.2 per cent next year, which is below the longer-term rates.

"The agri industry has gone through challenges this year, but this report shows brighter days are just ahead," said David Rinneard, National Director of Agriculture, BMO Bank of Montreal. "This, along with the prediction of low food inflation, represents great news for both the sector and Canadian consumers."

Business Challenges and Opportunities

The report does warn that despite the positive outlook, farm operators will have to navigate a number of challenges, such as rising input prices and the strong dollar.

"The agricultural sector, by definition, faces challenges like supply and changeable weather," said Mr. Rinneard. "With these other potential difficulties, our farmers need to ensure they have strategies in place to cope with whatever problems arise.

"BMO boasts an extensive team of commercial ag-industry experts who understand their customers' local business and local business environment, and who apply a consistent approach through all business cycles, in good times and bad," he said. "We stand ready to help our farm customers, no matter what comes their way."

The full report can be found at www.bmocm.com/economics.

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