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BMO Financial Group

April 26, 2012 09:00 ET

Canada's Agricultural Activity Poised for Growth-BMO Economics

- Expansion of 2.5 to 3 per cent expected in 2012

- Crops leading the way - large canola crop in the cards

- Growth in the 2 to 3 per cent range expected in 2013 and beyond, reflecting sector's increasing exposure to emerging markets.

TORONTO, ONTARIO--(Marketwire - April 26, 2012) - Canada's agricultural sector is poised for growth above average yearly rates seen over the past two decades, according to the new Canadian Agricultural Prospects report released today by BMO Capital Markets Economics.

The sector is projected to expand between 2.5 per cent and 3 per cent in 2012 and in the 2 per cent to 3 per cent range in subsequent years, reflecting an increasing demand for Canadian agricultural products from emerging markets where incomes are growing briskly and consumption levels have been traditionally low.

"While farm prices are expected to moderate this year, they should remain elevated in view of continued strong demand, particularly in fast-growth emerging markets," said Kenrick Jordan, Senior Economist, BMO Capital Markets. "Production would likely be even higher in the absence of constraints imposed by the strong loonie and elevated input costs. Given expectations of higher output and continued strong prices, Canadian farmers should experience another year of solid financial performance.

"A beneficial overall demand and pricing environment, along with a return to more favourable growing conditions and some improvement in market access, such as South Korea's lifting of import restrictions on beef, should facilitate increased production of crops and livestock."

Mr. Jordan noted that, on the crops side, farmers are likely to boost output notably in response to last year's stellar prices, with a record large canola crop expected. However, livestock gains are expected to be more modest, constrained by the relatively small size of the cattle and hog herds.

"The sector has shown a remarkable adaptability over the years, evident in superior productivity performance, rising export orientation, a shift in output mix toward value-added products, and the launch of new enterprises," said Mr. Jordan. "These trends should hold as farmers continue to adapt. Critically, despite their solid record on this score, farmers will have target further productivity gains to offset the challenges of rising input costs and the strong loonie. In addition, sophisticated risk management strategies will be needed to address increasing volatility in input and output prices, production and profits.

"The need for ongoing cost reduction, innovation, market diversification, and risk management capacity is likely to spur consolidation and the development of larger, more capital-intensive, complex operations," concluded Mr. Jordan.

"Canadian agricultural producers faced some challenges last year as many prairie grain growers dealt with significant moisture levels while livestock farmers contended with rising input costs," said David Rinneard, National Manager, Agriculture, BMO Bank of Montreal. "However, Canada's farmers have a wonderful track record of perseverance and success. With continued demand and favourable prices, together with a return to better growing conditions, the 2012 table appears set for the industry to expand in the coming year."

The complete report can be downloaded at www.bmocm.com/economics.

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 $538 billion as at January 31, 2012, and more than 47,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.

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