Canada Agribusiness Report Q4 2013 - New Market Report

Canada's position in the global grain market was reinforced in 2012/13 thanks to better than expected wheat and corn production, and in a context of tight supply from other major producers. Even though the country's grain crop will prove strong again in 2013/14, the return of the Black Sea Region and other producers to export markets will limit the country's market share that year. Canada's dairy industry has seen improvements in margins and we believe it will continue to do so in the medium term. The country's livestock industry has been suffering from tight margins and disease outbreaks, which could confirm the country's decreasing importance in the global meat market. We are still positive about Agrium as the company's nutrient exposure has sheltered it from damages caused by recent potash dispute. Also, even after the potash stocks crashed, Agrium is trading at a lower Price/Earnings and Price/Book ratio compared to the industry.

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* Wheat production growth to 2016/17: 9.0% to 27.6mn tonnes. Liberalisation of the Canadian Wheat Board will increase competition between exporters and encourage farmers to boost production.
* Sugar consumption growth to 2017: -0.8% to 1.0mn tonnes. We are moderately bearish on sugar consumption in the medium term on the back of already high consumption per capita and changing eating habits towards healthier options.
* Poultry production growth to 2016/17: 13.2% to 1.2mn tonnes. This will be due to consumers' perception that poultry is a healthier meat, along with increasing export opportunities. High poultry prices are also expected to stimulate production.
* 2013 real GDP growth: 1.7% year-on-year (y-o-y). Stagnating compared to 2012 and predicted to average 2.2% over 2012-2017.
* Consumer price inflation: 1.5% y-o-y in 2013. Stagnating compared to 2012 and predicted to average 2.0% over 2012-2017.
* BMI universe agribusiness market value: 2.2% y-o-y decrease to US$25.9bn in 2012/13. Forecast to increase by an average of 0.1% annually between 2011/12 and 2016/17.

Revisions To Forecasts:

* Sugar: 2012/11 production revised down from 133,000 to 122,000 tonnes in line with the latest estimates.

Industry Outlook

We continue to forecast a strong rebound in Canadian poultry production in 2013 as the country's supply management system has shielded farmers from the recent spike in input prices. In fact, poultry farmers in the country can pass on their increases in input costs to processing plants, limiting the impact on their margins of the spike in grain prices in 2012. As a result, we forecast poultry production to increase by 5.0% y-o-y in 2013 to reach 1.1mn tonnes. This growth is above recent averages, as the country's poultry production proves very competitive this year compared to importers' output, in a context of thin margins for the industry.

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