The Chief Agricultural Economist with Farm Credit Canada says risk management will be key for the livestock sector in 2019 amid tight profit margins and higher borrowing costs.
For the most part Farm Credit Canada is projecting 2019 to be a break even year for the livestock sector.
J.P. Gervais, the Chief Agricultural Economist with Farm Credit Canada, says tight profitability will require sound risk management strategies.
On the hog and pork side we’re looking right now at futures markets telling us that for the entire 2019 you’re probably going to break even on average, so some losses early in the year, perhaps some profits later in the year but then overall it should be a break even year so risk management is absolutely critical for producers in that sense.
On the cattle and beef side, your looking at cow calf producers perhaps having profit margins that remain positive but slightly lower than what they’ve been in the past.
It’s gong to be a mixed year as well for feedlots so overall on the animal protein side I would say margins are likely to be tighter.
Risk management is absolutely critical to make sure that you don’t expose yourself to undo risk at a time when we’re likely to have borrowing costs go up. We’re not projecting the Bank of Canada to lift interest rates until the second half of the year but never the less we’ve had five rate increases in Canada over the last 18 months.
It takes time for that to be felt throughout the supply chain and for most businesses to feel the impact of higher interest rates because you have to wait till loans to come up for renewal and so on but 2019 is certainly a time where we expect those operations to face higher borrowing cost so that’s another additional risk there to factor in.
~ J.P. Gervais, Farm Credit Canada
None the less Gervais remains optimistic for 2019 as demand for Canadian commodities is trending upward. He recommends keeping an eye on the financial environment as well as global trends such as trade that can affect the bottom line.
