As the New Year is upon us one looks ahead with the hope that those elements that affect our lives will be the same or better. However, pending some world calamity that will drastically affect food production, hope is all we have for the near future. Commodity prices for almost all commercial livestock and crops will remain under pressure and could see a continuation of price declines that occurred in 2015.
Let's be real that trend was no surprise particularly with cattle, which over the past couple of years saw prices reach record-setting highs. Present prices, although somewhat down, are still fairly healthy. Crop prices began their decline four years ago and no recovery is in sight with the main grain-growing areas of the world in a surplus production situation. Only a major drought or crop failure in any of those areas will cause prices to increase. I expect large commercial operators will be fine tuning their agronomic practices and risk management programs. Those renting farmland to large crop operators could well see demands to lower acreage rents. Most large scale crop producers are highly sophisticated growers and marketers, and even with average crop yields, will survive, even thrive. I expect crop consultants will have a good year providing advice.
I expect with lower prices, the large commercial grain operations will be further developing their marketing programs particularly for wheat. It's taken time for grain growers and buyers to adjust to an open wheat market without the involvement of the Canadian Wheat Board (CWB). In the past, the CWB played a critical role in equal market access and price pooling for growers, and shipping streamlining and coordination for buyers. Without the CWB over the past few years, wheat marketing and shipping has become problematic, especially when trying to move a bumper crop in a declining price market. For those trying to grow wheat and other crops in the more remote areas in the Peace River district and North Central Alberta, the last few years have been trying times indeed. However as wheat marketing stabilizes and both sellers and buyers develop a consistent marketing process, prices could well increase, albeit marginally.
For cattle and beef production, the coming year should be viewed with some trepidation. As expected, the past year's high prices have seen a consumer backlash with beef demand decreasing as folks instead bought more alternative meats like pork. To say the least, it's hard for the average consumer to afford a $20 T-bone steak. There may be some short-term reprieve as the American market re-opens to unfettered access thanks to the repeal of US COOL import restrictions. Add to that the decline of the Canadian Loonie and cheaper transport costs and one can see a surge in live cattle and hog exports to the US over the next six months. However, as noted in a previous column – be careful of the consequences of the COOL decision – it may cause a cattle marketing catastrophe in western Canada. If there is a significant increase in live slaughter cattle exports to the USA as a result of COOL being repealed, it could seriously affect the financial viability of the two big processing plants in the province as their throughput decreases to uneconomic levels. Feedlots and processors have already been under some pressure with the overall decline of the cattle herd over the past ten years.
One might presume that most large commercial operators will get some benefit from declining energy prices over the next year – but it will not be enough to offset a general decline in commodity prices. In Alberta producers might also see an increase in costs with the implementation of new WCB and OHS standards for their paid farm workers. Then one ponders some intangibles like new environmental regulations and lifestyle marketing requirements which could increase costs that can't be recovered from the market place.
Finally, 2015 saw an indirect economic impact hit the agriculture and rural community – the collapse of energy prices. That saw massive layoffs in the countryside and energy service industry losses, both of which impact many medium-sized farming and ranching operations. Many of those family farms rely on off-farm income to keep the overall operation alive and viable. One hopes otherwise, but 2016 may become a year to overcome and forget for the agricultural and rural community of Alberta. But there is some optimism thanks to our new Prime Minister – perhaps growing legal marijuana will be the new hope for a better year.