CHICAGO, ILLINOIS and MILWAUKEE, WISCONSIN and TORONTO, ONTARIO -- (Marketwired) -- 06/27/13 -- Despite a rainy start to planting season, the outlook for the U.S. agriculture sector will still be better than last year when the Midwest was hit by a severe drought, according to BMO Economics. Much of the region has seen extensive rainfall since the beginning of May, delaying spring planting. Meanwhile, the outlook north of the border remains positive, with Canadian farmers still enjoying higher than normal prices for a number of crops.
"Canadian farmers have benefitted from increased demand and higher prices after U.S. crop yields were depressed by last summer's drought," said Aaron Goertzen, Economist, BMO Capital Markets. "Increased supply following this summer's harvest - as U.S. farmers get back on track - will likely mean lower prices for Canadian farmers, but should also help reduce food prices for North American consumers."
U.S. Agriculture Will Have a "Just-in-Time" Year
In the United States, the planting process came to a late close, as wet conditions delayed progress this spring. Northern Illinois, Southern Wisconsin and Nebraska are in better shape than other parts of the Corn Belt.
"The general consensus for the U.S. agriculture industry in 2013 was that, coming off of the drought, we'd see a big crop this year; this, in turn, would lead to lower feed costs, as well as other food prices coming down," said Sam Miller, Managing Director and Head, Agriculture, BMO Harris Bank. "While we're not getting the start we wanted - the heavy rainfall over the past 45 days has put some plantings behind schedule - the prospects are still there for a good year."
The United States Department of Agriculture recently noted that farmers in the U.S. are on track for a record year of agricultural exports. The 2013 outlook is currently projecting $139.5 billion in exports this fiscal year.
"While grain farmers seek improved crop yields, livestock producers and other grain buyers anticipate these higher yields will lead to lower feed and grain prices, as well as improvement for stressed margins," added Mr. Miller. "The challenging start to this year will again make it a just-in-time year - adequate growing conditions, appropriate moisture as the summer progresses and a later first freeze will all likely have a hand in how the year turns out."
Canadian Outlook Encouraging With Little Impact from Flooding
According to David Rinneard, Director of Agriculture and Agribusiness, BMO Bank of Montreal, stable crop prices and good yields are good news, and not just for crop producers. "Adequate supplies of reasonably priced inputs will be welcome news for Canada's cattle and hog producers. This, compounded by plenty of hay-spurring rain, leave livestock producers better poised for 2013. Together, Canada's agriculture industry should be looking forward to a well balanced year," Mr. Rinneard said.
In the Canadian west, seeding is reported to be complete or nearly complete, with the pace of overall planting being broadly in line with historical norms.
Although the flood in Alberta has affected some agricultural producers, thankfully initial reports suggest that the impact on the agricultural sector has been relatively limited compared to the terrible damage inflicted on communities and public infrastructure in the province. The flood has hit producers only in the immediate vicinity of affected waterways, though it also resulted in the temporary closure of some meat processing facilities in the province. Overall, crop emergence in Alberta is reported to be noticeably ahead of last year.
In other regions, the BMO agriculture outlook noted:
-- Saskatchewan crops are somewhat behind, producers in the province are reporting excellent crop quality.-- Wheat acreage in parts of the Prairies has been expanded this year, setting the stage for what could be a very strong harvest, provided the weather conditions remain supportive.-- Canola acreage is reported to be down moderately compared to last year - a reversal of the trend seen over the past decade - partly due to farmers' shift towards wheat.-- In Ontario, conditions are broadly supportive of corn and soybean crops.-- Apple farmers in Ontario are faring far better this year after a late- spring frost killed more than 80 per cent of their blossoming crop in 2012. A healthier harvest this year will also begin to re-apply downward pressure to apple prices.-- Ontario's grape crop is also reported to be shaping up well. Although some growers have experienced higher than normal levels of precipitation, this year's crop is expected to be healthy as long as weather conditions remain balanced for the remainder of the season.
Crop prices in Canada have remained largely favorable, which would compound the financial benefit of a solid crop. Wheat prices remain elevated and canola prices are in the range of all-time highs. Corn and soybean prices also remain lucrative, although high prices have bolstered planting in both of these crops, which will likely apply downward pressure to prices as this year's harvest makes its way to market.
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $555 billion as at April 30, 2013, and more than 46,000 employees, BMO Financial Group provides a broad range of personal and commercial banking, wealth management and investment banking products and solutions.
Patrick O'Herlihy, Chicago