Canadian Agriculture in 2007: Better Farm Prices and Incomes as World Demand for Food Increases

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By Bishnu Saha and Michael Trant, Statistics Canada

Agriculture in 2007: Key events

High prices for grains and oilseeds, continued strength in the Canadian dollar, and further increases in crude oil prices and farm inputs were the key issues for Canadian agriculture in 2007 that had an impact on the Canadian agri-food industry from the farm gate to the consumers' plate. It was good news for grain and oilseed producers and exporters but not livestock producers, particularly cattle and hog farmers.

Grain and oilseed prices began to increase in 2007. It was a welcome change for crop producers but a major challenge to livestock farmers, particularly those in the beef cattle and hog sectors, who faced substantive increases in feed costs (Figure 1). Declining prices of hogs and beef cattle, especially during the second half of the year, added to their challenges.

The slow but persistent annual declines in world grain stocks coupled with increased commodity speculation in the financial markets began to push world grain and oilseed prices to new levels (Figure 2). Rising world food demand and the increased demand for corn and soybeans in the biofuel industry reduced global crop supplies leaving global inventories at levels not seen since 1980/81.

Weather also played a role in 2007, reducing crop production in the world's more important grain exporting countries. Hot and dry growing conditions reduced crop production in Canada while Australia 's grain growing regions experienced severe droughts for the second consecutive year. In addition, wheat yields in parts of the United States were hurt by frost, followed by excessive rainfall. However, low world wheat stocks and rising prices resulted in US farmers increasing winter wheat plantings by 13.2% (United States Department of Agriculture (USDA)).

The Canadian dollar rose steadily throughout 2007 starting the year at almost 86 cents US reaching parity with the US dollar in late September, peaking at over US$ 1.10 in early November, then closing the year at close to par. The impact of the Canadian dollar's appreciation was mixed. It may have helped farmers who needed to buy imported goods and services, but it also reduced the incomes of Canadian farmers, particularly those producing products for international export priced in US dollars.

Crude oil prices increased almost steadily over the year and ended the year with a 12-month increase of about 60% (Figure 2). Fuel and fertilizers are essential inputs for farm production, and their prices increased with the rising prices of crude oil. This made it increasingly challenging for farmers to make production decisions and control crop production costs.

The higher international crude oil prices also improved the economics of producing alternative fuels from corn and soybeans. This further stimulated crop demand and increased crop prices. Higher crop prices may bring Canadian crop farmers benefits in the short-run but higher oil prices started to put upward pressure on fuel, fertilizer and chemical prices and thus affect farmers' input use and production decisions in the long-run.

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