Wholesalers shook off a disappointing December to start the New Year strong, helped in part by a price driven surge in the sale of agricultural chemicals, according to Statistics Canada.

Sales by Canadian wholesalers rose a healthy 2.6% in January to $44.1 billion, effectively offsetting the 2.6% drop recorded in December.

In January, six of the seven wholesale sectors reported higher sales, led by very strong growth in the other products” sector (+11.4%). The growth in this sector was driven by higher sales of agricultural chemicals, which also benefited from sharply higher prices during the month.

Wholesalers of machinery and electronic equipment (+2.2%), food, beverage and tobacco products (+2.1%) and building materials (+1.7%) were the other major contributors to January’s increase in sales.

The farm products sector, which consists primarily of livestock sales, was the only sector to register a decline (-4.6%) in January.

Sales in constant dollars, which remove the impact of price changes to provide an indicator of volume sales, increased by 3.5 % during the month.

‘Other Products’ Strong
The “other products” sector racked up its highest monthly gain on record (+11.4%) in January, thanks in large part to a significant increase in the sale of agricultural chemicals. These products account for roughly one-quarter of sales in this sector, which also includes wholesalers of recycled materials, paper products and non-agricultural chemicals.

A significant part of the increase in agricultural chemical sales was price-driven. January is typically the time of the year when many contracts are re-negotiated, and with global demand for agricultural inputs surging, prices for these products have risen significantly over the past year. According to the latest figures from the Industrial Product Price Index, overall fertilizer prices were 25% higher in January compared with the same month in 2007.

Much of this demand is coming from developing markets such as China, India and Brazil, which has in turn led to a large increase in exports over the past year. After registering a 21.6% increase in 2007, exports of fertilizers and fertilizer materials continued to move ahead in January, rising a further 26.4% according to the latest International Trade data.

Gains in Machinery &Electronic Equipment
Wholesalers of machinery and electronic equipment put a soft December (-1.3%) behind them as sales moved ahead by 2.2% in January to $9.5 billion. This was the fourth increase in five months for this sector.

All three trade groups that make up this sector reported higher sales in January: sales of computers and other electronic equipment rose 3.4%, office and professional equipment was up 3.0%, while sales of machinery and equipment posted a more modest rise of 1.2%.

With businesses continuing to take advantage of the strong Canadian dollar to invest in new machinery and equipment, prospects for this sector remain positive. According to the latest Survey of Private and Public Investment, overall investment in machinery and equipment is expected to increase for a sixth consecutive year in 2008, up a further 5.7%.

Sales of food, beverage and tobacco products recover from December drop
Wholesalers in the food, beverage and tobacco products sector recovered from a weak December (-3.0%) to register a 2.1% increase in sales in January to $7.9 billion.

The food products trade group was behind all of the gain in January, as sales rose 3.2% to $7.3 billion. This was in marked contrast to the alcohol and tobacco group, where sales fell 10.0% to $595 million.

By Province
Nearly all the provinces and territories recorded higher sales in January. Among the regions, the most notable gains were in the Prairie provinces.

Saskatchewan led the way with a 12.8% jump, its largest increase since February 2005. The gain was entirely attributable to the surge in the “other products” sector, which in this province consists almost entirely of wholesalers of agricultural chemicals. This sector was also a major factor behind the province’s rapid sales growth throughout 2007.

Higher sales in the “other products” sector also accounted for much of the 8.9% increase in Manitoba. Other areas of strength were the automotive products and personal and household goods sectors.

After falling for the first time in seven months in December, sales in Alberta resumed their upward trajectory (+4.4%) in January. Higher sales of food, beverage and tobacco products, “other products” and machinery and electronic equipment were behind much of the gain.

In Quebec, widespread gains helped bring to an end a string of three consecutive monthly declines, with January sales up 3.3%. Increases were most apparent in the automotive products, building materials and machinery and equipment sectors.

In Ontario, weakness in the automotive products sector was offset by stronger sales of “other products” and machinery and equipment, leading to an overall gain of 1.1%.

All four Atlantic provinces registered higher sales in January. Nova Scotia recorded the largest increase (+7.4%) followed by Newfoundland and Labrador (+3.1%), while sales in New Brunswick (+0.7%) and Prince Edward Island (+0.2%) edged up slightly.

Inventories Decline
Inventories fell for the second straight month in January, down 0.8% to $54.6 billion following a 0.7% decline in December.

Inventory levels fell in 10 of the 15 wholesale trade groups. Wholesalers of motor vehicles reported the largest decrease in inventories, down 3.6% to $4.5 billion. Inventories within this trade group have been on a generally downward trend since the end of 2006.

Some of the other trade groups reporting notable declines in inventories included “other products” (-2.0%), building supplies (-1.7%) and computers and electronic equipment (-2.3%).

Inventory-to-Sales Ratio
January’s big increase in sales, coupled with the drop in inventories, led to a significant drop in the inventory-to-sales ratio from 1.28 in December to 1.24 in January, its lowest level since July 2007.

Although the ratio has been somewhat volatile over the past year or so, the overall trend has seen a slight decline since hitting its last peak in September 2006.

The inventory-to sales ratio is a measure of the time, in months, that would be required to exhaust inventories if sales were to remain at their current level.