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2018 Commodity Outlook Steve Duff Chief Economist OMAFRA
2018 Commodity Outlook
Steve DuffChief Economist
OMAFRA
Overview
US market situation and outlook
Canadian and Ontario Market Situation
Ontario Outlook
2
US Market Situation and Outlook
3
20
0
40
60
120
100
80
2010 2011 2012 2013 2014 2015 2016 2017
Billi
onPo
unds
Beef
Pork
Poultry
U.S. Meat Production
Source: USDA - WASDE
US Cow Herd Size
5
US cow herd bottomed in 2014 and is now into a third year of expansion
US Drought Monitor
6
Feed and pasture availability back to normal in major US cattle producing areas
US Sow Herd Size
7
US sow herd bottomed in 2014 and is now into a third year of expansion
US Sow Herd Productivity
8
US productivity per litter has grown rapidly since 2006
US Ethanol Production
Sources: NASS
Sources: CME
US Crude Oil Futures Price
0
10
20
30
60
50
40
MM
T Corn Wheat Soybean Rice, Milled
U.S. Ending Stocks
Source: USDA - WASDE
US Corn
Source: USDA - WASDE
US Soybeans
Source: USDA - WASDE
Iowa Corn Prices vs. Costs
Source: USDA - WASDE
Canadian & Ontario Market Situation
15
Food Prices
16
Food prices generally exceed rate of inflation Food at home is more volatile than restaurant food Growing demand for lean protein and beef Beef has risen more than the rest of meat complex
Canadian Meat Demand
17
Total meat demand is growing Beef demand was relatively flat despite rising prices until 2016
Canadian Cow Herd Size
18
Canadian cow herd at lowest level in 20 years – down over 1.5 million head – slight expansion?
Ontario Feeder Calf Basis
19
• High crop prices and low returns since BSE has tightened an already tight feeder calf supply
• Weak dollar, and low supply of calves are main drivers
Ontario Cattle Slaughter
20
• Ontario cattle slaughter has fallen as cow numbers fell• Western Feeder cattle are nearly 40% of total slaughter • Slaughter prices have hit record highs
Ontario Cattle Slaughter
21
• Tight slaughter supply means a strong basis• Simply not enough fed cattle in Ontario to meet demand
Beef Imports
22
Beef imports are a major part of the Canadian supply chain and have returned to pre-BSE levels – 26%
Ontario imports close to 50% of beef consumption
Ontario Sow Herd Productivity
23
Ontario productivity per litter has grown rapidly since 2006 Ontario pigs born per litter exceed US by almost 2 pigs
Ontario Hog Slaughter
24
• Ontario hog slaughter fell as sow numbers declined and has flattened• Roughly 500,000 hogs go to Quebec for slaughter now• Remaining Ontario packers after 2015 plant closures have expanded
capacity and scale considerably
Ontario Hog Slaughter
25
• After very strong basis in 2015 due to plant closures and movement of hogs to Quebec
• With Ontario plant capacity expansion market hog basis has moved much closer to historical levels
Pork Imports
26
Pork imports are a major part of the Canadian supply chain
Ontario imports roughly 35% of pork consumption
Ontario Corn Basis
27
Ontario Soybean Basis
28
Ontario Market Outlook
29
Source: CME Group, 01/16/2018
Current Canadian Dollar Futures
Source: CME Group, 01/16/2018
Current US Corn Futures
Ontario Corn Returns to Land and Owner Labour
32
Source: CME Group, 01/16/2018
Current US Soybean Futures
34
Ontario Soybean Returns to Land and Owner Labour
Source: CME Group, 01/16/2018
Current US Hog Futures
Ontario Farrow – Finish Return to Owner Labour
36
Adapted from OMAFRA RMP farrow-weaner and hog finishing farm sample – assumes purchase of all feed
Source: CME Group, 01/16/2018
Current US Feeder Cattle Futures
Source: CME Group, 01/16/2018
Current US Slaughter Cattle Futures
Ontario Feedlot Return to Owner Labour
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Adapted from OMAFRA RMP feedlot farm sample – assumes purchase of all feed
Highlights Long-term prospects for the ag sector continue to be bright. 2018 should see modestly higher US acreage for grains & oilseeds crops. US beef and pork production continues to grow while demand is growing –
adding strength to prices in the medium to longer term Unpredictability and volatility are likely to increase due to expansion of
livestock markets in the US and high level of stocks Weak Canadian dollar continues to largely shield Canadian farmers from
price weakness experienced in US. Ontario prices Farmers must continue to implement a number of strategies:
• pushing for production and cost efficiencies;• participating in business risk management programs;• hedging on commodity markets;• using available marketing tools;• ensuring credit is in place before it is needed; and,• reducing debt and increasing liquid assets.
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