Economic update: a soft landing and a bumper crop
Ontario President’s Council
September 9, 2024
About me
PhD from the University of California, Davis in 2008
Assistant and associate professor of economics at Iowa State University, 2009-2019
Economist at Farm Credit Canada, 2019-2022
Founded Pouliot Economics Inc. in October 2022
- Expert services in agricultural economics
Dashboards
Macroeconomy
Global economy
United States
Canada
GDP growth
Labour
Inflation
Interest rates
Exchange rates
Global economy
- The global economy seems to be stabilizing after dealing with the pandemic and high inflation
- GDP growth forecasts from the July World Economic Outlook Update from the IMF
Real GDP growth forecasts
| World |
+3.2% |
+3.3% |
| Canada |
+1.3% |
+2.4% |
| United States |
+2.6% |
+1.9% |
| Euro area |
+0.9% |
+1.5% |
| Japan |
+0.7% |
+1.0% |
| China |
+5.0% |
+4.5% |
| India |
+7.0% |
+6.5% |
| Mexico |
+2.2% |
+1.6% |
| Brazil |
+2.1% |
+2.4% |
United States: a resilient economy
Election year!
Robust economy despite high interest rates, but some mixed signals
July and August job numbers were disappointing and caused volatility in the stock market
Strong manufacturing sales in July
GDP growth: Q1 2024 = +1.4%, and Q2 2024 +2.8%
Inflation is getting under control, touching 3%
- A soft landing is becoming very likely
Growing probability that the Federal Reserve will lower its policy rate on September 17, and later this year
Canada
- Inflation is getting under control
- Signs that the economy is slowing down
- Growing pressure on the Bank of Canada to lower its policy rate
GDP per capita in decline
- Reasons include:
- Rapidly increasing population
- Lack of investment in capital from a decade ago
- Canada has a productivity problem
- Economy running below its potential
- Demand from consumers is shifting to lower-value products
- High interest rates will continue to hurt
- More interest rate cuts to come
Unemployment rate
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Inflation is getting under control
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Policy interest rates in selected countries
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Interest rates in Canada
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Exchange rates: Canadian dollar is relatively weak
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Agriculture
- Inflation for inputs has slowed down
- Lower prices for grains and oilseeds
- A new conflict with China
Inputs
- High inflation on inputs is over
- Big crops mean low animal feed prices
- Energy prices are down
Industrial product price indices
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Animal feeds
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Grains and oilseeds
- Big crops in the U.S.
- 15.1 billion bushels of corn (183 bushels per acre)
- 4.6 billion bushels of soybeans (53.2 bushels per acre)
- Nearly 2 billion bushels of wheat (52.2 bushels per acre)
- High levels of global stocks
- These will keep prices low for the next year
Corn
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Soybeans
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Wheat
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Livestock
- Gross margins have risen
- This ignores increased borrowing costs
- Lower feed costs support profitability
- Look into the direction where the margins are heading rather than their actual levels
Dairy
- Gross margins do not take into account the cost of capital, which has risen
- Likely a small increase of milk price in February 2025
- Inflation is low
- Small increase in production costs
Cattle prices
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Cattle gross margins
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Hog prices
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Hog margins
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Chicken
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Turkey
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Eggs
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China countervailing duties on canola
- China launched an anti-dumping probe regarding imports of canola from Canada
- Not a surprise
- A step before China imposes a tariff on imports of canola
- I estimated that the short-term impact of the 2019 ban a 5% drop in canola prices in Canada.
- The impact likely smaller this time
- Canada exports less canola to China
- Canadian firms know how to get around China’s import restrictions
- Other target could be pork
- Unlikely
- Pork prices in China have recovered from their lows
- Pork exports to China significantly down compared to 2020 and 2021
Conclusions
- Macroeconomy
- A soft landing very likely
- Agriculture
- Input prices growing less rapidly
- Bumper crops in the US:
- Low crop prices
- Lower feed prices
