One of the conversations in the first few weeks of the new year often ask the question “What should I be paying attention to?”
Farm Credit Canada (FCC) has released its list of the top 5 economic trends for Canadian agriculture and food to watch in 2022.
J.P. Gervais, chief economist at FCC, joined RealAg Radio host Shaun Haney to break down these trends.
Check out the full conversation below, and read on for a quick summary:
J.P. Gervais: “For for farm operations, if you think at the farm level, even further down the supply chain, I think you know, the first question I get all the time is what about interest rates? And you’re looking at tearing probabilities of seeing a rate hike in Canada. So the next meeting of the Bank of Canada is the 26th of January, and the probably is around 40 per cent. But you move to the next meeting, and then this is where the financial markets have fully priced in the first hike now — 25 basis points. By April, you’re looking at two hikes. By July, you’re looking at 75 basis points. By the end of the year, 2022, 125 basis points. So I think it’s pretty clear looking at the yield curve. So we’re arguing like monitor deals here.”
2. Supply chain challenges
“Everything can be tied to inflation. So supply chain disruptions. There’s all sorts of signs as well that we’re not back to normal. The share of containers out of Vancouver that are returning empty is still around 60 per cent, that it was 30 per cent prior to the pandemic. There are a lot of different signals that’s going to take time, and the supply chain is not back to normal. Don’t expect them to be back to normal at least until the second half of 2022, when it starts to move a little bit more.”
3. Supply and demand for key commodities
“Because of the drought of 2021, we’re sitting at very low stocks. If you compare our stock to use ration for example, currently, we are projected at the end of the marketing year, relative to the five to ten year average. So we’re very, very tight, but it’s not tight everywhere. So I think that one thing I would like to point out is yeah, if you look at barley it’s tight, if you look at corn, it’s tight. Soybeans is not as tight, and wheat also isn’t as tight. So to have that global perspective. The point here is to just open up to the global picture and see, don’t just know blindly — and I’m not suggesting that most operations do — but certainly not looking at past prices as an indication of future prices. Just look at whether this marketing strategy makes sense in the context of the uncertainty of the pandemic, as well as some of the geopolitical trends as well out there.”
4. Labour force challenges
“We’re still seeing cost transportation costs very high now, and with this new variant, what it has done is created a lot of different supply or labour supply problems in the form of anything — truck, transportation, to a lot of different things. And so that’s going to keep costs high. Does it mean businesses are going to find a solution? I truly truly believe in the resilience of short and medium sized businesses and as well as the large multinationals as well to find solutions, but that’s going to come at a cost. So I think that’s going to be more inflation.”
5. Shifting consumer demand for meat
“There’s always been strength in beef demand, but if you look at the last two quarters of data that we have deep demand, actually depth to that. I think this is a result of some of the prices — it’s less competitive now than the way it has been over the last couple of years. And so we say, you know, for a strong beef sector, we need strong beef demand. So we have to be thinking about prices. It’s not, of course, you know food service and so forth. It matters when it comes to what consumers buy. But the reality as well is that there is a market out there. And consumers like to diversify their food baskets, and they’re going to be looking at prices. So hopefully, we can sort of control the inflation at the meat counters. And because we need that domestic demand to be as strong as possible. We were on the growth path — we were on an upward trend prior to the pandemic. So hopefully we can resume that at some point in time as we’re opening more of the economy and our prices come down.”
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