Canada Markets

Agriculture and Agri-Food Canada's 2016 Canadian Agricultural Outlook paints a positive picture for the Canadian agriculture industry, with the nominal net cash income estimated to reach a record $15 billion in 2015, 6% higher than the record set in 2014. AAFC compares this number to the United States, where net cash income is expected to decline 28% in 2015.

Forecasts for net-cash income for 2016 is expected to fall by 9% to $13.6 billion, given an overall drop in receipts of 1% combined with input costs which are expected to rise 2%. As seen on the attached chart, crop receipts are expected to fall only .1% in 2016, to $30.6 billion, while livestock receipts are expected to fall by 3.5% to $25.2 billion, with herd-rebuilding resulting in lower numbers marketed over the year.

AAFC cites two major "macroeconomic conditions" supporting the country's industry, which includes the lower price of oil which has reduced farm fuel expenses along with the weak Canadian dollar which has buffered Canada's ag exports from commodity price weakness.

Chances are that forecasts in this study have overstated the crude oil price in the upcoming year. Estimates in this study were based on an average price of crude at US$51/barrel, while Monday's fiscal projections released by Canada's federal government based calculations on US$40/barrel. Meanwhile, the International Energy Agency announced today that the global glut of oil will extend into 2017 which will continue to weigh on prices over the upcoming year, while the nearby crude contract has struggled between $26.05 and $34.82/barrel over more than six weeks.

There are many opinions surrounding the potential for the Canadian dollar, while the study utilized Conference Board of Canada forecast which call for a strengthening over the medium term to $.84 CAD/USD by 2020. Overestimating the potential for the crude oil market may also result in an overestimation of the potential for the Canadian dollar over time, while the country's deficits which are indicated to be much higher than previously estimated may result in further weakness in Canada's currency.

As seen on the attached chart, Canada's total crop receipts are expected to fall only slightly in 2016, from $30.7 billion in 2015 to $30.6 billion in 2016. By crop, an expected year-over-year decline in traditional crops such as wheat, soybeans and corn receipts are expected to be largely offset by gains in receipts in canola, pulses and special crops. From 2015 to 2016, wheat receipts are expected to fall by 9% while the combination of soybean and corn receipts is forecast to fall by 3%. Offsetting this decline is a 3% increase in canola receipts along with a 16% increase in pulses and special crops.

By province, the 2015 to 2016 forecast change in crop receipts ranges from Ontario, down minus 2.7%, to Saskatchewan, forecast to rise 1.8%.

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DTN 360 Poll

This week's poll asks what you feel will be the biggest story in 2016 with regards to year-over-year reductions in acreage seen in Canadian crops. You can weigh in with your thoughts on DTN's 360 Poll which is found at the lower-right corner of your DTN Home Page. Thanks for your support!

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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