Soaring grain prices and a crop size that could reach historic heights are expected to give the Manitoba economy a boost in growth not seen for many years.
In its latest provincial outlook, the Royal Bank (RBC) is forecasting 3.3 per cent growth in Manitoba's gross domestic product (GDP) in 2012 and another 3.2 per cent increase in 2013.
The RBC, the most aggressive forecaster among the nine private-sector organizations that publish such prognostications, upgraded its expectations for the province's economic performance for both years.
Manitoba was the only province to receive such treatment from the RBC, which is noteworthy because the bank said the environment in which provincial economies operate has became more challenging.
"Globally, we saw Europe slip into recession, growth in China ease, U.S. growth fail to accelerate, and commodity markets lose some of their lustre," the report stated. "At home, we saw fiscal restraint kick into higher gear, especially at the provincial level."
Because of that, the bank lowered its 2012 GDP growth forecast for Canada from June by half a percentage point to 2.1 per cent.
But the RBC clearly believes Manitoba's economy will get a significant bump from the agriculture sector after experiencing two consecutive years in which millions of acres of farmland in Manitoba were not seeded because of excess moisture.
Paul Ferley, the RBC's assistant chief economist, said, "Going into the forecast at the start of the year we assume normal weather conditions. Our assumptions were pretty conservative."
He said the combination of good weather and large crops along with high prices brought on by a drought in the U.S. corn belt has particularly benefited the Manitoba agriculture sector.
"This year, in contrast, just about everywhere else has been hit by poor growing conditions," Ferley said. "Meanwhile, Manitoba has benefited by a sharp bounce in production and higher prices in a bumper crop."
Narendra Budhia, director of economics and fiscal analysis with the province's Department of Finance, said the RBC has been particularly optimistic about the Manitoba economy for some time.
In fact, the RBC's latest forecast is a significant outlier among the other forecasters. As of July 31, the average forecast growth for 2012 among the organizations that regularly produce forecasts calls for growth of 2.4 per cent for 2012 in Manitoba and 2.2 per cent for 2013.
"It seems that the RBC is now looking at the fact crop prices are up and the secondary effect through retail sales and consumer spending that will have in the economy," Budhia said.
Ferley said the upgrade in the fall forecast is partly a result of Statistics Canada's late-August crop estimate that anticipates the largest canola crop in history and a 10 per cent increase in the wheat crop compared with last year.
Manitoba was particularly hard hit last year. The RBC's analysis is that Manitoba's combined wheat and canola crop will be 60 per cent larger than last year after declines of 30 per cent and 22 per cent in 2011 and 2010, respectively.
Ferley said the RBC's forecast includes a tempered expectation for the manufacturing sector, which he said showed more weakness than previously anticipated, especially food processing. He noted the challenges in the potato-processing industry, which was forced to gear down after the poor performance of the 2011 crop.
As well, the province's hog industry is readying for another round of producer pain caused by the high feed prices that are benefiting grain producers but might force some hog producers out of the market.
Andrew Dickson, general manager of the Manitoba Pork Council, said processors are not having a problem with supply, but that may change by next spring if producers back away from the business.
He said in anticipation of that, processors are already offering prices for June 2013 that are close to 50 per cent higher than prices producers are getting for hogs to be delivered in February.
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Source: RBC Economics