At this time of year everyone tends to take a look into a crystal ball for a glimpse of what may lie ahead for the new year.
While there are always mists of uncertainty surrounding such a look, sort of like the rabbit ears’ reception on an old black and white television, this year’s view is not one most are going to be happy with.
The world had been enjoying some 10 years of commodity prices buoying the overall economy. Prices for iron ore to make steel, gas to fire industry, and as a result most other commodities taken along for the ride, have seen some record highs over the past decade, and in general terms steadily high prices.
That was until 2015, when the commodity market slipped into a standstill, and without the momentum of the recent past, prices began to roll back like a boulder up a hill when those pushing it up the incline became too tired to take it higher.
In this case the pusher of commodity prices had been China.
China’s industrial growth, which was the driving force for commodities such as iron ore and oil, ground to a halt. Without what had been near double digit growth numbers for years, that country’s appetite for more and more raw materials disappeared in 2015, and frankly there was nowhere else in the world capable of buffering the system against that decline.
In very real terms commodity prices were a case of having all their eggs in one basket, with China the basket, and it simply broke.
One report throughout the news agency Reuters had iron ore prices tumbling by 40 per cent this in 2015 due to global oversupply and shrinking Chinese steel demand.
In coal, thermal prices fell almost a third in 2015.
Copper and zinc shed a quarter of their value, and nickel collapsed more than 40 per cent.
If that doesn’t sound regressing, it should, as the prospect for a recovery in 2016 seems remote.
For Canada, a country so reliant on commodity exports the hit is rather direct.
Here on the Prairies we feel the impact of low oil prices in reduced jobs in the sector, and the loss of buying power because of it, which hits the retail sector.
Potash has not been immune to the commodity decline, with a mine in Eastern Canada simply shutting its doors.
The result is a Canadian dollar that is tumbling like a hungarian partridge winged in hunting season.
That does help bolster exports to the United States, a key market for Canadian pork, beef and a range of other products, but there is a point where too low a dollar impacts consumers in a very negative way as in store items reflect the low dollar. We already see that on items such as books.
We are also going to see the impact of the low commodity prices when it comes to revenue expectations in provincial budgets on the Prairies in 2016.
And the low dollar will not be a friend in those budgets either.
So we can expect austere budgets provincially, and federally, more red ink than many are going to be happy with.
Now a slight positive is that agricultural commodities have not declined to the same degree as oil and minerals.
However, ag products do not operate in a vacuum independent of other commodities either, so the general drag will make any 2016 rallies harder to kick start, unless there are major weather issues at play.
So farmers are going to find themselves hoping that prices can dig in and hold the line, which is likely the most optimistic vision one will have been able to crystal ball.
In the end farmers, like most of us, will need to batten down the hatches, because it looks like there will be some rough economic waters ahead this year.
Calvin Daniels is Assistant Editor with Yorkton This Week.
