TORONTO and CHICAGO, Sept. 17,
2021 /CNW/ - For the first time in years, North
American farmers are grappling with widespread growing challenges,
according to a new report from BMO Economics on the agriculture
sector in Canada and the United States.
"In both Canada and
the United States, exceptionally
hot and dry weather across the prairies has curtailed crop yields
and is dragging production of major products like wheat and canola
to multi-year lows," said Aaron
Goertzen, Senior Economist, BMO Capital Markets. "But there
is a silver lining: after years of excess supply, expectations of a
smaller harvest have helped provoke a large increase in crop
prices. Strengthening demand has also helped."
The report notes that food demand not only held up well through
the coronavirus recession, it increased sharply—and grocery volumes
have remained high even as the restaurant industry has reopened.
"Strong demand, coupled with less abundant supply, has given a
major lift to both crop and livestock prices," stated Mr. Goertzen.
"That, on its own, is great news for the farm sector."
The report also points out another challenge: costs are rising
too, with farmers across the continent facing higher prices for
many of their most important inputs, including equipment,
fertilizer, feed, and energy. "With costs on the upswing, it is as
important as ever for farmers to maintain an unrelenting focus on
efficiency," said Mr. Goertzen. "Fortunately, both crop and
livestock producers have an impressive track record on that front.
Overall, North American wheat production has increased by around 40
per cent over the past half century, even as the amount of acreage
devoted to the crop declined by more than 20 per cent. Livestock
producers have also made major strides over the long run; in
the United States, the average
finished steer now weighs almost 350 pounds more at the time of
slaughter than it did fifty years ago."
"The situation in the west is a material production challenge
and it's affecting producers in almost every sector," said
Janine Sekulic, National Director,
Agriculture and Agribusiness, Canadian Commercial Banking, BMO Bank
of Montreal. "We've been in
constant contact with our customers and working with our internal
partners to make sure that we're ready to help where we can.
There's no one-size-fits-all solution in agriculture and we believe
that the key is in understanding the industry and the individual
needs of each customer in good times and bad.
"Despite the current challenges, we see huge opportunities in
agriculture. We have confidence in the resiliency of our customers.
We are as positive as we've ever been on the long-term outlook for
this industry," concluded Ms. Sekulic.
"In the United States, crop and
livestock farmers are in better shape financially as compared to
recent years; however, they face a number of challenges, which
include weather uncertainty, increasing costs of fuel, fertilizer,
seed, feed, rent and labor, as well as variability in market
prices," said Sam Miller, Managing
Director and Group Head, Agricultural Banking, BMO Harris
Bank. "Prudent risk management practices remain critical to
successfully navigating current and expected market
conditions."
Crops
It has been apparent for months that crop yields across the
prairies would be subpar this year, but the latest estimates are
eye-opening. "In the United
States, total wheat yields are likely to be around 12 per
cent below trend this year—and that estimate incorporates a decent
winter wheat harvest earlier this year," said Mr. Goertzen. "In
Canada, which produces
predominantly spring wheat, yields are projected to be roughly 33
per cent below trend this year. The drought on the prairies has
also devastated yields for Canadian canola—typically the country's
largest revenue-generating crop—which are likely to be 37 per cent
below trend this year. U.S. canola yields are also extremely weak,
though the crop is not grown intensively south of the border."
Although North American corn and soybean yields have held up
relatively well this year, reflecting generally accommodative
conditions in the U.S. Midwest, continental stockpiles of all major
crops are getting extremely low. "Across North America as a whole, inventories of
wheat, canola, corn, and soybeans are all projected to fall near
decade-lows relative to consumption by the end of the current
marketing year," stated Mr. Goertzen.
Livestock
Livestock prices are also benefitting from tighter supply after
years of herd expansion. The North American cattle herd actually
turned lower before the pandemic, but declined further in 2020 as
meatpacker closures undermined farm-level pricing. This year,
the overall headcount of the cattle herd has remained under
pressure, as producers in drought-affected regions have been making
the difficult decision to cull their herds, driven by the reduced
quality of grazing land, the higher cost of purchased feed, and in
the hardest hit areas, shortages of drinking water.
"The fact that cattle prices have trended higher despite such
culling is a testament to the strength of the demand environment,"
noted Mr. Goertzen. "Overall, the North American cattle herd is on
track to end this year around 2.1 per cent smaller than at the end
of 2018."
The hog industry has experienced generally similar dynamics.
After a period of rapid expansion, last year's meat processing
shutdowns put hog producers decisively into herd reduction mode and
significantly reduced the size of the pig crop. This year, higher
feed costs are yielding a record rate of slaughter, which is
keeping pressure on the herd. Overall, the North American hog herd
is on track to end this year around 2.2 per cent smaller than at
the end of 2019.
To view the full report, visit:
https://economics.bmo.com/en/publications/detail/f88c5aa9-5740-4fb5-b35d-5ff3d2cb1131/
About BMO Financial Group
Serving customers for 200 years and counting, BMO is a highly
diversified financial services provider - the 8th largest bank, by
assets, in North America. With
total assets of $971 billion as of
July 31, 2021, and a team of diverse
and highly engaged employees, BMO provides a broad range of
personal and commercial banking, wealth management and investment
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conducts business through three operating groups: Personal and
Commercial Banking, BMO Wealth Management and BMO Capital
Markets.
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SOURCE BMO Financial Group