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BMO: Ag sector set to expand in 2011


May 3, 2011
By BMO Economics

Topics

April 29, 2011, Toronto,
Ont – After two years of contraction, Canada’s agricultural sector is set to
grow this year amid expanding global economic activity, improved financial
conditions, and stronger prices, according to the Canadian Agricultural
Prospects report released by BMO Economics.

April 29, 2011, Toronto,
Ont – After two years of contraction, Canada’s agricultural sector is set to
grow this year amid expanding global economic activity, improved financial
conditions, and stronger prices, according to the Canadian Agricultural
Prospects report
released by BMO Economics.

“Momentum from the
second half of last year has carried over into 2011, with farm output up 3.3
per cent from a year ago in January,” said Kenrick Jordan, senior economist
with BMO Capital Markets. “Better prices, healthier global economic activity,
and improved financial conditions will support the sector’s expansion this
year.”

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Overall, the
agricultural sector is likely to expand by between 3.5 per cent and four per
cent this year, although there is a risk that flooding could constrain yields.
The crops segment is slated to grow at a somewhat faster pace than its
livestock counterpart, where activity will be limited by smaller breeding herds
and high feeding costs. Canadian farmers are likely to continue to experience
solid financial performance this year, with crop and livestock prices expected
to remain buoyant and output rising on stronger demand and improved yields.

“Our agriculture
customers tell us they are well poised to capitalize on this opportunity,” said
David Rinneard, national manager of agriculture with BMO Bank of Montreal. “We
have remained committed to agriculture and its producers, recognizing farming
is a critical, strategic, and viable component of Canada's economy.”

The report does identify
some potential challenges for Canadian farmers:

  • Prices for energy,
    fertilizer and feed have been rising again lately and are likely to remain high
    by historical standards, with greater variability.
  • The strength of the
    Canadian dollar will continue to constrain exports, production and
    profitability, especially in those segments that are heavily dependent on
    foreign markets.

To address these
challenges, Jordan said Canadian farmers must:

  • Continue to cut costs
    through greater scale, technological advances and improved organization;
  • Increase value-added by
    catering to shifting customer preferences; and
  • Boost sales to fast
    growing markets, where low per capita consumption and brisk income growth are
    lifting demand.

Jordan added that while
the fortunes of Canadian farmers have brightened, rising farm prices have put
upward pressure on food prices at the consumer level.

“Consumer food price
inflation has begun to pick up and this trend is likely to hold over the next
several months. Overall, though, the increase in consumer food prices will be
markedly less than that for primary crop and livestock products, given the
small share of farm products in retail prices, the fairly small and declining
share of household budgets spent on food, and heightened competition among
retailers.”

The full report from BMO
Economics
can be downloaded at bmocm.com/economics.