While food supply chain will continue to be impacted in 2022, the FCC said it sees a growth opportunity for farms, ag businesses and food processors to innovate and better mitigate risk.
By Andrew Joseph, Farms.com
Examining current trends and models, Farm Credit Canada (FCC) said in its economic outlook for 2022 shows continuing challenges impacting the food supply chain, but because that means demand for commodities and food means will be high, there is more of an opportunity for growth with farms, agribusinesses and food processors to innovate and better manage risk.
The 2022 outlook suggests that prices will remain strong for the grains, oilseeds and pulses sector, aided by a low national and global supply of these commodities caused in part by the drought that afflicted western Canada last year.
“There is plenty of optimism for this sector looking at the year ahead; however, two of the biggest economic trends that could impact profitability are rising crop input costs and the impact of global political tensions on trade,” said J.P. Gervais, Chief Economist for the FCC. “I can’t emphasize enough the value of farm management and strategic thinking. Producers need to continue to plan for disruptions like we’ve seen in the past year.”
The FCC opines that the higher prices for few commodities predict that seeded acres of soybeans and canola will climb in 2022, while the number of corn acreage will decrease due to the higher costs of fertilizer being realized. Fertilizer prices have jumped dramatically over last year’s costs, and while its fast rate of increase is expected to slow, prices will remain high in 2022.
Strong prices will also be realized for the cattle market in 2022 with a decline in fed cattle. It forecasts that because of higher feed costs, fed cattle will likely be marketed at lower weights, causing volume by weight to decline. With higher prices, cattle receipts should grow, but noted that the drought has and will impact access to feed, resulting in some cattle producers downsizing operations.
“The pandemic has impacted buying decisions in the grocery aisles. Canadian beef consumption slowed in 2021, but the positive five-year trend in consumption pre-pandemic is expected to resume while export demand remains robust,” Gervais explained.
The dairy sector is a mixed bag of growth, said the FCC. Although consumer appetite for dairy products grew in 2021, it did not reach expected levels. Because of the increasing costs for feed and energy, the Canadian Dairy Commission is increasing the support price for butter. However, although the dairy farm price is expected to experience an increase, milk output at the farm level could see only limited growth.
The FCC predicts limited growth potential for the hog market in 2022. It said that hog prices are projected to decline slightly and with marginal growth in production. Higher feed prices will challenge profitability and may hinder production growth.
How producers can build resilience and capitalize on opportunities to advance their operations:
- Strategy – keep an eye on long-term objectives, including growth. Think about the integration of operational, marketing and financial plans;
- Innovation – consider the technological changes, efficiencies and sustainable practices that would provide an edge to your operation;
- Risk Management – develop scenarios to determine exposure to unfavourable market trends, interest rate increases, higher input prices, trade impacts or weather events;
- Execution – Surround yourself with skilled resources to help you assess and adjust your financial and marketing plans as the economy and markets evolve.
"While the long-term outlook for Canada's ag and food industry is positive, there are many factors to keep in mind as operations make their plans, including input costs, trade tensions, variable weather and changing consumer behaviour,” Gervais summed up. “We encourage producers to stay up-to-date on the important topics and trends that will impact them and take action accordingly.”
The 2022 outlook reports are available on the crops, dairy and hog/cattle sectors. For economic insights and analysis on the top trends to watch for in Canada’s agriculture and food industry in 2022, visit FCC Economics at fcc.ca/Economics.
The FCC is Canada’s leading agriculture and food lender, with a healthy loan portfolio of more than $44 billion, providing flexible, competitively priced financing, AgExpert management software, information and knowledge specifically designed for the agriculture and food industry. For more information, visit fcc.ca.