Saskatchewan remains a bright spot

Bank of Nova Scotia‘s commodity price index was down by 10% for oil and gas and by almost by 12% for grains and oilseeds in December 2013, compared with the same period in 2012. And prices are liable to drop even further in 2014 before they start climbing back up in the latter part of this decade, says a report from Scotiabank.

Saskatchewan, with more than half of the world’s reserves of potash, has a lot riding on this pink mineral, which is the third major crop nutrient (after nitrogen and phosphorous). And the forecast for potash prices in 2014 is cloudy, as they have fallen sharply due to the collapse of the Belarusian potash cartel in July 2013. Prices dropped from US$417 a tonne in July 2013 to US$320 in November and below US$300 in the first quarter of 2014.

Accordingly, Saskatoon-based Potash Corp. of Saskatchewan Inc. (PotashCorp) announced an 18% production cut and 440 layoffs at two of its mines in the province late last year. Plymouth, Minn.-based potash producer Mosaic Co. also cut production and put its $2-billion, two-million-tonnes-a-year expansion projects at two Saskatchewan mines on hold. However, expansion projects at PotashCorp’s Cory and Allan mines will come onstream in 2014, boosting production.

A Royal Bank of Canada (RBC) report is forecasting potash production will increase by 5% in 2014 and 2015, about half the growth rate in 2013. Capital spending by potash companies similarly will be muted, although work continues on Australia-based BHP Billiton Ltd.’s Jansen project, which saw $2.6 billion spent in 2013 alone, and Germany-based K+S’s $4-billion Legacy Mine.

Uranium production is expected to accelerate with the completion this year of Saskatoon-based Cameco Corp.’s Cigar Lake mine – one of the richest in the world.

Uranium prices remain under pressure in the wake of the Fukushima nuclear disaster in Japan in 2011, which caused world prices to melt down to US$35 a pound from US$68. However, Japan is considering restarting some of its dozens of reactors, which have been shutdown since the catastrophic accident. If that happens, increased demand may help the price of uranium recover.

The record crop of 38.4 million tonnes of grains and oilseeds (mainly wheat, barley and canola) boosted Saskatchewan’s real gross domestic product (GDP) growth to 3.9% in 2013, according to the RBC report, which adds that an average crop will lower provincial GDP growth to 2.1% in 2014. Wheat prices have fallen to US$300 a tonne from US$500 in 2011, while canola prices have also plunged to US$475 a tonne from US$650 earlier in 2013. On a positive note, livestock prices have remained steady, thanks in part to falling feed costs.

Next: Oil and gas
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Oil and gas

With the oil and gas industry accounting for 20% of provincial GDP, oil has replaced wheat as Saskatchewan’s most important commodity. Oil production in 2013 was on track to break the record of 172.9 million barrels set in 2012.

Another strong year for oil production in the province is expected, although lower land-sale activity ($67 million in oil and gas drilling rights were sold in 2013 vs $106 million in 2012) suggests a slower pace of drilling in 2014. A report from the Ottawa-based Conference Board of Canada foresees GDP growth slowing this year to 2.4% from 3.5% in 2013. Employment growth is expected to drop to 1.7% in 2014 from 3.4% in 2013.

In fact, virtually all economists are calling for the province’s economy to slow slightly in 2014. After posting solid gains in 2013, Saskatchewan’s economy should grow by a healthy 2.6% in 2014, based on the average of seven private-sector forecasters.

In many ways, 2013 will be a tough act to follow, with records being set for a range of indicators that suggest the province is in for a prolonged period of prosperity. Population rose strongly in 2013 to 1.1 million as of October. Job growth set a new record with 18,000 new jobs added, well ahead of the previous record of 13,000 set in 1977. In addition, exports topped $33 billion, the fourth-highest in Canada; the province’s unemployment rate was the country’s lowest in December, at 3.9%; manufacturing sales were at $12.8 billion; and housing starts and building permits were at, or near, record levels in many centres in 2013, with Saskatoon exceeding $1 billion in building permits again last year, while Regina posted the highest total housing starts (3,122) since 1977.

However, a report from Canada Mortgage and Housing Corp. is calling for housing construction activity to moderate in 2014, while housing prices are expected to increase only modestly after a flat year in 2013, according to Royal LePage Real Estate Services Ltd.

Capital (private and public) investment is expected to top a record $20 billion in 2013 for the second year in a row but decline in 2014, according to a Conference Board of Canada report.

All of which proves that no province can defy the laws of physics – or economics – for long.

Saskatchewan

Population: 1,114,000

GDP 2012 ($bil.): 77.9

GDP % change: +6.1

2013-14 surplus ($mil.): 22.8

Estimated net Debt ($bil.): 0

Median after-tax income, all families: $53,200

Household disposable income/capita: $31,363

Figures are from latest available reports/estimates

Sources: conference board of Canada;

Government reports

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