U.S. drought to directly impact Canadian farmers: BMO
A dry corn field receives some rain from a passing thunder storm near Blair, Neb., Wednesday, Aug. 8, 2012. (AP / Nati Harnik)
Published Wednesday, August 8, 2012 12:29PM EDT
Last Updated Wednesday, August 8, 2012 11:37PM EDT
The worst drought the U.S. has seen in 56 years will have a substantial effect on Canadian farmers – both good and bad – say agriculture analysts with BMO Bank of Montreal
The dry conditions all across the U.S. have left nearly half of the U.S. corn crop in poor to very poor condition, according to the USDA's National Agricultural Statistics Service. About 40 per cent of the U.S. soybeans were in the same category, the survey showed.
The drop in production has driven up prices for these key commodities to record and near record levels, which is good news for Canadians who farm the same crops, says David Rinneard, the national manager for agriculture at BMO Bank of Montreal.
“Those (Canadian farmers) who have uncontracted crops for sale in 2012 stand well poised to capitalize on the situation. That favourable scenario stands true for much of Canada’s prairies and some pockets of Ontario,” Rinneard told reporters in a conference call Wednesday.
“Even those cash croppers who are anticipating reduced yields will fare relatively well as increased commodity prices will offset moderate yield deterioration,” he said.
But it won’t be all good news for other kinds of farmers who expected a good year but who have watched their crops wither and die from the volatile weather at the beginning of the growing season.
“Regrettably however, there will be farmers – and Ontario farmers more specifically -- who will face trials as the arid conditions and the hot weather leave many 2012 crops thirsty.”
Rinneard notes that livestock producers will be particularly hard hit as the soaring costs of feed squeezes what are already “very thin margins.”
While it’s well known that the costs of grains have risen, Rinneard says the largest effect is likely to come from the seldom-discussed and less-apparent restriction the drought is having on North American hay production.
“Eastern Canadian hay fields are demonstrating the same performance many of your lawns are -- quite simply: scorched,” Rinneard said.
Sam Miller, the managing director and group head of agriculture at BMO Harris Bank, says livestock producers in both the U.S. and Canada will have a large hill to climb this year.
“They’ll be searching high and low for feed. They’re culling herds now to reduce feed needs and improve productivity,” he said.
The problem with that, says Rinneard, is that a large livestock selloff will inundate market with supply, forcing cattle prices down, “further undermining any hope for prosperity for 2012 and in some cases, leaving producers in a rut for next year,” he said.