Rising input costs could hinder profits in 2022
Canadian cattle and dairy producers have had a tough year last year. Drought in the West caused massive crop failure, floods in British Columbia caused significant stress, input costs continue to rise, and the effects of COVID-19 continue to wreak havoc on markets. Yet, it was still a good year for Canadian farmers, said Farm Credit Canada (FCC) principal economist Sébastien Pouliot.
Pouliot expects farm cash receipts to continue to grow in 2022, although at a more moderate pace. While farm cash receipts may continue to grow, he warns that this does not necessarily mean farm profits will increase. Rising input costs could considerably shrink profit margins, he said.
The second half of 2021 saw rising cattle prices, said the FCC analyst. “However, the drought in the Prairies parched pastures, making access to low-cost feeds increasingly difficult,” wrote Pouliot. “As a result, some cattle farmers downsized their operations.”
Despite rising input costs, Pouliot said market signals suggest strong cattle prices in 2022.
“We forecast the number of fed cattle marketed in 2022 to decline, and because of the high feed costs, we expect fed cattle will be marketed at lower weights, causing volume by weight to decline,” wrote Pouliot. “Nevertheless, given higher prices, total cattle receipts should grow.”
Dairy receipts also continue to grow, and while demand for dairy products grew in 2021, the pace of growth was below expectations, said FCC. Dairy receipts are expected to grow by 3.7% in 2022, though. This is, in part, due to Canadian Dairy Commission’s increase of the support price for butter, which comes into effect on 1 February. The increase was in response to rising costs for feed and energy, reported Pouliot who estimates the farm gate milk price will increase to CAD$6.31/hl.
“Accordingly, we forecast the dairy farm price to increase by 8.5%,” he said. “Projections for farm output growth are limited to a 0.4% gain.”