FCC Ag Economics helps you make sense of these top economic trends and issues likely to affect your operation in 2020:
- Trade tensions’ influence on the global economy and agri-food markets
- African Swine Fever’s disruption of livestock and meat markets
- Large global supplies amid challenging growing conditions for crops
Profitability is expected to be uneven for grain, oilseed, and pulse producers in 2020. Prices will continue to be pressured by abundant global supplies. Demand will be the story to watch in 2020. A reduction in the global hog herd from African Swine Fever (ASF), trade tensions and flat U.S. ethanol demand may result in weaker demand. Futures markets suggest prices for most grain, oilseed and pulse commodities will remain under their five-year average.
While low prices likely result in tight margins for 2020, several factors can shift this outlook. A faster-than-expected rebuild of the Chinese hog herd could grow the demand for oilseeds. The U.S. and China agreed to a phase one deal which, upon implementation, could yield a significant jump in grain and oilseed purchases, raising North American prices. And the U.S. administration may choose to boost ethanol demand looking to offset the declines of recent years. In short, the uncertain environment of 2019 will carry into 2020.
Crop input prices are expected to trend slightly higher in 2020. While fertilizer prices are currently weaker due to harvest challenges that delayed fall fertilizer placement across North America, they could climb before the Spring, with an annual jump between 5% to 7% in 2020. Inflation for fuel and pesticides is expected to stay in the 0% to 3% range. There shouldn’t be any increase in interest rates in 2020, making interest expenses manageable.
Grains
U.S. wheat prices for the 2019-20 crop year are projected 10% lower than the year prior, resulting in a projection of C$241 per tonne for the 2020 average Canadian spring wheat price. This puts margins slightly above break-even levels, assuming average yield. Global wheat ending stocks in 2020 are projected to be at a record high, pressuring global prices. A 3.5% year-over-year (YoY) increase in 2019 Canadian production yields a projected increase in the Canadian stocks-to-use ratio. However, premiums for high-quality protein wheat are expected to remain strong due to supply challenges for hard red spring wheat and quality issues in Canada and the northern U.S.
Weaker global and domestic supplies of durum are expected to result in higher durum prices in 2020; our projection is for an average price of C$253 a tonne, resulting in positive margins for growers. While Italy’s country-of-origin legislation remains in place, exports of durum to Italy have nearly doubled in the 2019-20 crop year compared to the 2018-19 crop year. Profitability is expected to trigger an increase in 2020 durum seeded acreage.
We expect corn profitability to be positive for 2020 based on a much tighter Canadian supply due to 2019 weather challenges. Prices should also improve if estimates of the U.S. 2019 crop production are revised downward as expected.
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