Drought presents opportunities, challenges for Canadian producers

REGINA, Sask.—Widespread drought in the United States could create opportunities as well as challenges for Canadian producers, according to Farm Credit Canada.

The U.S. accounts for nearly 40 per cent of world corn production and 35 per cent of world soybean production, according to the agriculture lender, and significant changes in U.S. production therefore have a major impact on world prices for these commodities.

This year’s U.S. drought is the most extensive since 1956.

“Canadian producers are certainly not immune from the impacts the near-record drought could have on commodity prices, input costs and industries connected to agriculture,” Farm Credit Canada senior agriculture economist Jean-Philippe Gervais said in a statement. “The ripple effect is already impacting some commodity prices and it matters to all Canadians because one in eight jobs in Canada is connected to agriculture and the agri-food system.”

According to the United States Department of Agriculture (USDA), the decline in the corn and soybean crop is unprecedented.

The average national corn yield is expected to be 123 bushels per acre, or 10.8-billion bushels nationally, down from July’s forecast of 146 bushels per acre, or 13-billion bushels.

This represents a decrease of approximately 20 per cent.

Projections for soybean yields were also reduced.

At the same time, price projections for all feed grains were raised substantially.

Gervais said corn and soybeans have already experienced price spikes, which benefits Canadian producers in general, as well as Western Canadian farmers who grow canola and wheat, as these commodities are seen as substitutes for corn and soybeans.

Conditions remain favourable for most commodities throughout Canada, with the some exceptions.

Dry conditions and poor soil moisture may reduce corn and soybean production in parts of Ontario and Quebec.

Some producers in the Prairies are dealing with excess moisture and disease, though Gervais said most Canadian crop producers are facing a positive outlook.

“At times like this, when crop producers are benefiting from higher prices, they should look at their financial management plan to see if accelerating debt repayment is possible,” Gervais said.

With a more scarce traditional feed supply, costs for feed are escalating, which adversely affects livestock producers.

“For Canadian cattle producers, it will likely be a case of short-term pain followed by long-term gain,” said Gervais, who noted cattle prices should rebound over the long haul as U.S. producers reduce herd sizes due to the drought conditions.

The impact of higher feed costs on Canadian hog producers is compounded by the challenges faced by the industry in recent years.

When facing challenges posed by higher input costs, planning and execution are key.

“Risk management tools, such as price contracts and hedging feed costs, can help make the best of a difficult situation,” Gervais said. “Another strategy used by hog producers is to maximize feed efficiency by adjusting diet formulations and ensuring that feeding equipment is working accurately.”

The market impacts of adverse weather events are usually short-lived, but Gervais noted the current drought has occurred at a time when stocks were already below historical average levels.

“It is more important than ever to determine what your risk tolerance is, and stick to your marketing plan,” he said.