India, China to continue strong growth: TD

A TD Economics special report called "2009 prospects for Canadian agriculture," forecasts crop prices above the five-year average, the Canadian dollar at 80 to 90 cents for the year, and lower costs for fuel, fertilizer and freight rates. Derek Burleton, TD's director of economic analysis, wrote the report. I've attached the whole report below, but here are the highlights:

"By mid-2009, we expect prices to regain their footing, including those in the beleaguered hog industry. In spite of global headwinds, farmers are expected to receive an offsetting boost in the near term from a weaker Canadian dollar and some easing in cost pressures."

"Most crop markets are heading into this period of global downturn enjoying relatively well balanced supply-demand conditions. Even then, demand for food tends to be less sensitive to deteriorating global income gains than other commodity areas. Furthermore, a bigger threat to the credit crisis is on supply rather than demand, as ongoing credit problems globally could dampen sales of machinery,fertilizer and other inputs, thus impeding next year’s output."

If you read my blog from Monday, you'll know that David Kohl predicts lower crop prices if total economic growth in China and India drops below five per cent. TD expects continued strong growth for these two countries. "TD Economics forecasts the economies of China and India to expand by 8.5-9 per cent and 6-6.5 per cent, respectively, in the 2009-10 period," the report says.

On the topic of interest rates, TD expects the Bank of Canada to drop its prime lending rate another 50 basis points before the end of 2008. But that will not necessarily mean bank credit rates will drop. "The prime lending rate is the benchmark for many loans. The Bankers Acceptances (BA) rate is the cost to financial institutions of raising cash. In recent months, the prime lending rate has declined as the Bank of Canada cut rates, but the BA rate has not fallen in tandem. Canada’s largest lenders take in deposits and make loans, but the loans are greater than the deposits. The difference must be financed in international markets, which are currently demanding elevated interest rates and impairing profitability. Policy makers in the U.S., Europe and Canada have introduced significant measures to address this problem in an effort to lower interbank lending rates. These actions are likely to be successful eventually, but it won’t happen overnight."

db1108_agri.pdf