Canada’s Economy Slows, Amid the Toxicity of Covid


December corn futures were down 50 cents this week after three straight days of losses. I wouldn’t call it a slap in the face, but we certainly have been accustomed to up or sideways. With Hurricane Ida exacting its toll on Gulf export facilities, all bids and offers were pulled sending bids and vessels elsewhere. Adding rain into some of the more parched droughty areas last week and you had the market bears looking up. Meanwhile crops in Ontario keep advancing. We had one Ontario farm tour peg Ontario corn yield at a jaw dropping 191.5 bushels per acre.

If that comes to fruition, it will be something. Ontario corn should be good this year and that prediction was just an indication to back up how things look from the road. There was a lot of dry weather this summer and the crop was in early. US States in the Eastern corn belt are looking at record yields and Ontario and Quebec are an extension of that, although Quebec has been a bit drier than Ontario.

This should set up Ontario farmers for a pretty good year, especially as prices have been healthy for the last 8 months and remain so even with the swoon this past week. Aside from that, we are still dealing with Covid and its associated supply constraints. We’ve talked about the inflationary pressures now apparent; we can only hope to stick handle through that this winter and next spring. Interestingly enough, while this was taking place, the Canadian economy contracted in the last quarter, which is never good for the greater Canadian agricultural economy.

According to Statistics Canada, “Real gross domestic product fell 0.3% in the last quarter which translates into 1.1 annualized drop in output since the second quarter of 2020 when Covid first showed up. Part of the challenge is related to some of these inflationary things I wrote about earlier. Container freight is scarce compared to pre Covid levels. There are problems sourcing containers and freight rates have soured. It’s all led to a bit of a hiccup, which has been so hard to predict. Who knew, cars and trucks would not be able to be sourced because of a chip shortage, ditto for certain high-end pieces for precision farming equipment?

It’s happening at a time when Canadians are saving more money that they used to. You might remember back pre Covid where Canadian finance ministers constantly lamented Canadian’s propensity to spend and not save. A silver lining of Covid is that many Canadians are saving more. Much of it is because supply constraints are limiting our choices and then there is Covid. In addition to this, there are also all kinds of stimulus from government that is adding up.

The government stimulus part is a bit of a wild card. “Tapering” is in vogue these days as central banks around the world think of a way to reduce the Covid stimulus money which has flooded the world with cash. With our economy contracting, even if it was in the second quarter, it tells you that the Bank of Canada won’t be touching interest rates any time soon. Then you have that Canadian election going on. Government money is being thrown around like chaff from the chopper.

What’s it mean? Increasingly, it’s hard to say. If there is one thing I’ve learned as a trained agricultural economist, is the era of low interest rates and Covid is a toxic mix to understand. The agricultural economist in me thinks all of this should be very inflationary, but the greater statistics don’t back that up. However, as farmers we know that everything from fuel to fertilizer to drainage tile is up at least 30% and more over last year. At the same time our economy is infused with government cash, but at the same time our supply chain as well as consumer spending is constrained by Covid. In many ways, we should just let the good times roll, but with a fourth wave of Covid taking place along with a contraction in our Canadian economy, it’s not playing out as you might think.

That’s unless there is an apocalypse on September 20th. Shame on me. Keep in mind, I have no political affiliation and I don’t care how you vote. However, we cannot negate how troubling these Covid times have been. In a very bad time, many of us had good years, even though the death toll has been staggering. The hiccup in the Canadian economy earlier this year was a bit of a wake-up call. As we move ahead, we’ll see what December corn does. However, as we all know, during these uneven times, there is so much more to consider.