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When U.S. soybean futures take a hit, Canadian farmers take that same hit save for one key difference: no government bailouts
Canadian farmers have been deeply affected by the ongoing and escalating trade war between U.S. and China.
“Farmers are always cognizant of changing market conditions,” said John Guelly, who farms near Westlock, Alta., and chairs the Alberta Canola Producers Commission.
“But, it’s usually weather-related or supply-and-demand for our commodities around the world. We have learned to interpret these conditions and are able to make an educated guess on when to pull the trigger and sell the commodities that we grow, or holdout for better prices.
But Guelly says trade issues “are a whole new kettle of fish.”
“Markets can swing dramatically with one political tweet these days. Countries that have happily swallowed up our products for years can suddenly shut them down overnight. There is so much uncertainty. We really aren’t sure what we should plant next season. It’s really changed the way farmers think and operate, and not in a good way.”
The logic that once played a central and indispensable role in international trade has been replaced by something that farmers and analysts have neither been able to properly demystify nor get ahead of.
We can interpret the moves and justify them as part of a larger plan, but any system attributed to what is going on between China and the United States is not robust — or systemic — enough to predict what will happen next.
It’s as if a once very alive trade network has been shocked into a fugue state from which it has yet to wake up. We poke at it. But it’s neither rational nor conscious.
Trade talks between the feuding nations restarted early August. Judging by the events that followed, both parties came to the table with a hubristic unwillingness to see value in playing give-and-take.
Shortly after talks resumed, U.S. President Donald Trump threatened raising tariffs by 10 per cent on $300 billion worth of imports starting Sept. 1, a bold move that pushed the trade negotiations way further from resolution.
Following Trump’s power play, Chinese Commerce Ministry announced that it will no longer be buying U.S. agricultural products. This is a huge blow to U.S. farmers — many of whom were already devastated by widespread flooding — and that’s how it’s being reported, which is correct. But news of what’s happening south of the border rarely takes the next and needed step of identifying just how intertwined Canada and U.S. are when it comes to agriculture.
“The China-U.S. trade war started with the Chinese imposing a 25 per cent tariff on U.S. soybeans,” said Philip Shaw, a farmer and agricultural economist near Dresden, Ont. “This caused an immediate $2.50 reduction in soybean futures prices and a corresponding reduction in Ontario soybean prices. On my own farm, that would result in a reduction in revenues of approximately $70,000. Multiply that across the Ontario and Quebec soybean crop. That’s a lot of money. There are always risks in farming. This is just another one.”
Many Canadian commodities are priced out of the Chicago Mercantile Exchange, meaning that, for example, when U.S. soybean futures take a hit, Canadian farmers take that same hit save for one key difference: the U.S. Department of Agriculture (USDA) routinely has fairly robust subsidy packages that provides needed aid to U.S. farmers and, in some cases, artificially props up unsustainable operations.
Canadian farmers, while they’re subject to the same market lows and crippling conditions caused by Trump’s tweets and policies, do not have access to the same bailouts. Sales of tractors 100 horsepower or more in Canada are down 20.7 per cent, year-over-year from January to June, according to the Association of Equipment Manufacturers. U.S. numbers are up nearly three per cent in the same category.
In late July, the USDA unveiled details of its new, US$16 billion trade aid stimulus that could see affected farmers receive up to US$150 per acre.
The U.S. will be scouring for new markets for its growing store of commodities. Canada is doing the same, as China has put the brakes on many of our ag exports, as well. Canada is an export country. We grow much more than we can consume. That said, there is definitely a push to invest in processing to both encourage more domestic uses for our commodities and to provide novel products to a global marketplace that Canada and the U.S. are now jostling for space in.
There remains the strong sentiment that there is only a finite amount of protein in this world and that eventually the need for those proteins will force reason to once again take a seat at the table.
As real as all these concerns are, it’s harvest time and that is a season characterized by hard work and optimism. The farmers sitting on boards that are applying back-pressure to the issues eroding the agricultural sector are temporarily placing that responsibility in the hands of staff members and lawmakers while they take to their fields and fill their bins for what will hopefully be a recovered marketplace.
Copyright Postmedia Network Inc., 2019