Pop the Corks! “The Recession Is Over!” So Says the Bank of Canada

Is the end near?  Well let me tell you.  According to Bank of Canada Governor Mark Carney, the end has come and gone. That’s right you heard it here and you read it in every Canadian newspaper over the last day or two, the recession is over in Canada.  Let’s break out the champagne for renewed food demand.

As optics go, these were pretty good optics.  In many ways you might say that the Bank of Canada’s effusive announcement that the recession is over might be a bit of an over reaction to how they missed it last fall.  You might remember last fall they continued to predict economic expansion after the American and global economy were clearly tanking.  So I wouldn’t hold your breath this time with the Bank of Canada saying it’s over.  With our Canadian loonie reaching over $.92 US today, that might be enough to send us for another loop.

In Canadian farm country there is a lot wrong right now.  So maybe we shouldn’t dwell on that and take this news for what it is.  If the Bank of Canada says the recession is over there should be rejoicing on every rural concession across Canada.  We certainly rely on the greater global economy to help with the demand equation for our agricultural commodities, so if it starts in Canada we’ll take that. The problem is we need the Americans and the rest of the world to get their economics back in order.

What the Bank of Canada governor said was the Canadian gross domestic product will expand at an annualized rate of 1.3% this quarter.  To put that in perspective you might remember that the bank said there would be a contraction of 1% this quarter in their earlier monetary policy report.  What the bank didn’t count on was stronger financial conditions, and business and consumer confidence at levels better than they had thought earlier this year.

So after all the gnashing of teeth over the last few months and talk of economic calamity “this recession ” lasted three quarters making it one of the shortest recessions in our history.   After all we’ve been through, that’s hard to believe.

I find it hard to believe.  For instance when the bank failures started adding up last year in the United States, I knew we were in for something that I had never experienced before.  Former Federal Reserve Chairman Alan Greenspan called it a once in a 70 year financial calamity.  At the same time the farm economy was not in recession, not even close.  In fact other than the livestock industry, grain producers were enjoying some of the best times ever.  You could make an argument now that there is a complete role reversal.

Clearly from a Canadian perspective the 2008/2009 recession was uneven across the country.  Case in point is Saskatchewan, that wonderful province in the middle of the prairies where it seems everybody important comes from.  Sure we might have seen cattle prices plummet and wheat prices soar over the last couple of years but Saskatchewan’s oil wealth had it booming.  They are even considering building a $350 million domed stadium to replace Regina’s Mosaic stadium, the home of the great Saskatchewan Roughriders.  Meanwhile in Ontario unemployment was closing in on the double digits.

Canadian farm country will certainly be watching how this “recovery “continues.  For instance on July 10th I wrote a market report where I quoted the Canadian dollar at about $.85 US.  Today, about nine days later the loonie broke through $.92 US.  That’s volatility!  It surely caused a negative spike into the Canadian agricultural economic psyche over the last week.   You could just hear the pig barn doors rattling and the negative basis moves twittering in the last few days.  A high Canadian dollar is never friendly to Canadian agriculture. Ditto for the greater Canadian economy.  In fact Bank of Canada Governor Mark Carney in his opening statement in the July 23 monetary policy report said a stronger and more volatile Canadian dollar represents an important downside risk to output and inflation.

The agricultural economic prospects looking forward vary between Canadian agricultural sectors.  The higher dollar certainly will make it worse.  For instance, over last few weeks we have had farm rallies across Ontario led by Ontario hog producers.  They are protesting over extremely unfair support programs brought forward by the Ontario government.  Grains and oilseed producers are on the other side of the ethanol gold rush and you can bet as we head toward fall with that market bears running amok we’ll see some rationalization.  It is so ironic to see the Canadian agricultural economy go into recession when the rest of the Canadian economic world at least according to the Bank of Canada is coming out it.

So if you are popping the corks getting ready to celebrate that “the recession is over “, hang fire.   Our Canadian agricultural economy is once again set for a bender. Of course the elephant in the room is a Canadian agricultural policy in shambles, still based on the old “CAIS”program, which we fought so hard against.

To make things better or worse, our beloved USDA said today that they are going to take another look at those acres and yields they so confidently told us on June 30th.  We’ll get the news in the week of August 10th.  If by that time it’s still freakishly cool day after day in southwestern Ontario farm country, I think I will go crazy.  2009/10 is shaping up to be one of those years.