For most Canadian farmers, 2012 is shaping up to be a fruitful year.

The country’s agriculture sector is on track to increase by 7.5 per cent this year, according to the latest overview on the sector from the Bank of Montreal’s BMO Economics.

That’s despite the ongoing difficulties facing hog and cattle farmers, and the effect of the devastating drought that withered crops in much of the U.S. heartland and parts of Ontario.

“Canadian agricultural producers have seen an impressive rebound in 2012,” said David Rinneard, national manager, agriculture at the Bank of Montreal.

“While challenges remain, continued demand and favourable prices, together with a return to better growing conditions, have been a clear boon to the industry.”

The surge follows a few feeble years, and emerges as other parts of the Canadian economy, such as housing, and consumer and government spending, are stagnating.

A good year in this massive sector – which directly provides one in eight jobs, employs two million people and accounts for about 8.2 per cent of Canada’s total economic output – will enrich the broader economy.

“If farmers have a good year and get some profit, the first they usually do is upgrade their infrastructure. They may put in new storage bins or update their machinery,” said Ron Bonnett, president of the Canadian Federation of Agriculture.

“That in turn has a huge spinoff to the whole economy.”

Canadian agriculture is diverse and spans the country. The prairies produce the bulk of the country’s red meat, grains and oilseeds (such as soybeans and canola), while Ontario and Quebec are the major dairy producing regions. Ontario also produces most of Canada’s corn and soybeans. Table-ready horticulture (from blueberries to potatoes) dominates in British Columbia and Atlantic Canada.

In the U.S., a staggering 80 per cent of agricultural land was affected by this year’s drought, the worst in more than 50 years. Farmers in many parts of Ontario also suffered through record dry conditions for months.

But Manitoba, Alberta, and Saskatchewan, had good growing conditions for the first time in several years.

The agriculture sector contracted by 4.6 per cent in 2009 and shrank by another 1.7 per cent in 2010, according to the BMO report. Last year, it grew by a 0.3 per cent.

“This year the shackles came off. The sun shone when it was supposed to. The rain fell when it was supposed to, and the mercury rose when it was supposed to,” Rinneard said.

“As a consequence, our prairie provinces had a really good run.”

The favourable growing conditions came as crop prices hit or came close to record highs Prices for corn and soybeans soared to records in July and August, driven by the drought.

The thirst for biofuels, such as ethanol, is also boosting demand and prices for some crops.

But that, in turn, makes life difficult for the country’s livestock producers, who face increasing costs to keep their animals fed.

Farmers have also suffered as a higher Canadian dollar that makes it more expensive for foreign customers to buy their products.

On the trade side, exports have been in decline this year. “The decline has reflected lower export volumes, particularly to the European Union, which have more than offset favourable price conditions,” Bank of Montreal economist Aaron Goertzen wrote in the report.

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It’s too soon to gauge the impact of the E. coli meat scare that shut down Alberta meat plant XL Foods following a massive recall that involved thousands of products, Rinneard said.

Still, the outlook is bright for Canadian farmers. The impact of the drought, along with higher demand from emerging markets will help support crop prices for several years. The growing middle class in China, India and other countries are adding more meat to their diets as they become wealthier.

“I’m picking up a lot more optimism than I have in some time,” Bonnett said. “They’re looking at fairly solid prices and expanding markets as well.”

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