The Canadian dollar will have the biggest – and a mostly positive – impact on Canadian agriculture in 2017, according to Farm Credit Canada (FCC).
In its annual list of main industry drivers farmers should keep an eye on in the New Year, FCC said the loonie will impact every business across the entire agri-food supply chain in 2017. “Varying against the relative value of the American dollar, it can uniquely drive profits either higher or lower and is therefore our No. 1 trend to watch.”
To that end, FCC forecast the loonie in 2017 will pick up right where it left off in 2016: It will be a generally positive trend for Canadian agriculture, remaining below its 5-year average of 88 cents US, and hovering around 75 cents throughout the year.
“Watch the loonie in 2017. It could easily have the largest impact of all possible trends and drivers on the profitability of Canadian agriculture and agribusiness throughout the year,” FCC said. “It’ll certainly show up in the prices Canadian ag producers will get and ultimately, their farm cash receipts. A low loonie makes Canadian manufactured food products more competitive in foreign markets, and domestically, it’ll help shield Canadian firms from foreign competition.”
Meanwhile, FCC also compiled a list of four other drivers it believes will also impact Canadian agriculture throughout 2017.
- Energy prices
The West Texas Intermediate oil price benchmark is expected to remain around the US$50 per barrel threshold. Commitments to cut oil production by major oil producing countries strengthened the outlook for oil recently. But there are serious questions about the likely supply and strength of demand throughout the year.
- Commodity prices
With production growth and high ending stocks the big story for 2017, commodity prices aren’t likely to get much better for Canadian producers. Will lower commodity prices keep consumption and export demand strong enough?
- Investment landscape
The U.S. Federal Reserve chose to hike its key interest rate in December. Interest rates should rise both in the U.S. and Canada, but it’s the spread between the different rates that matters. With an outlook for this spread to grow slightly in 2017, how much investment potential will the Canadian economy hold?
- Global economy
The global economy will be a bit of a wild card in 2017. It’s going to impact demand for ag commodities. But as China-U.S. trade flows evolve, the question of their capacity to influence commodity prices and the long-term health of Canadian ag exports remains.
Source: DePutter Publishing Ltd.
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