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World events will change prices

In the first of a two-part series, Brian Wittal looks at market forces

Looking out the window at -20 C and eight inches of snow I can hear that old proverb repeating in my head. “If you can’t say something nice, don’t say anything at all.” I am going to take some creative license with this saying and replace the word “nice” with the word “informative,” in hopes of giving you some useful information to help you make amore informed decisions for your farm business.

Supply and demand

A quick glance at commodity supply and demand charts shows variability in grain production over the past few years due to weather issues around the globe. Over the long term, there has been a steady increase in overall grain production and demand, but when you look at ending stocks and stocks-to-use ratios, slowly climbing higher year over year, you can see an inventory surplus building. This will not bode well for prices.

From a Canadian perspective, canola is the only grain that, even with significant production increases over the past four years, has falling ending stocks and stock-to-use ratios. This is due to aggressive exports and increases in crush demand. Can we continue to meet that growth demand?

Macro influences

Other factors around the world could impact world grain markets and our competitiveness. First, the results of the U.S. election will continue to bring an element of uncertainty both from a political and a market perspective. No one knows what the President Trump will do regarding countries like China and Mexico. Those countries are seen as stealing jobs from Americans, which Trump has vowed to stop. The tactics he employs could impact other market sectors — including agricultural commodities. The threat of trade embargoes or tariff and trade challenges could compromise the opportunity for U.S. and Canadian farmers to access markets.

Brexit is also still to fully play out. It’s unknown what kind of impact, if any, this separation could have on world grain markets, or whether it could open up market opportunities for Canadian grains.

Changing currencies

Over the past 12 to 18 months world currencies have been playing a game of “who can get to the bottom fastest.” Those include Brazil, Argentina, Mexico, China, Russia, Ukraine, Canada and a few others. The one exception is the U.S. dollar, which soared to a 13-year high in November in response to Trump’s election victory and his pledge to Make America Great Again with jobs and an improved economy. It has since come off that high but is still holding strong, waiting for Trump to take control of the White House.

For the most part, lower currencies were a direct result of governments consciously allowing their currencies to devalue, in an effort to boost local exports to stimulate local economies and increase jobs.

Currency devaluation plays a major role in the ability of a country to sell its grains into the world markets at competitive values. This has been very evident over the past couple of years in places like Russia, Ukraine, South America and Canada.

An agriculture revolution of sorts has been taking place in the Former Soviet Union region for the past 25 years. We are seeing a huge shift in grain production potential as foreign investment and corporate farms appear, bringing with them the latest in genetics, agronomics, technology and production practices. This has dramatically changed the world grain export scene. Back in the late 80s and early 90s the FSU region was importing in excess of 30MT of grains a year. Now they’re exporting more than 50 MT a year — a shift of 80 MT in the world export trade.

If you allow your currency to devalue as Russia has for the past two years, you position yourself to become a very aggressive exporter of grain products. This means you’re selling goods abroad and bringing foreign currency back into your economy, stimulating growth and creating jobs, which is good for your people and your country. Over the past year, Russian has become the largest exporter of wheat in the world. Ukraine and other countries in this region are following Russia’s path, intent on becoming grain export powerhouses in their own rights in an effort to improve their countries’ economic futures and standards of living.

We’ll continue this discussion in the next article.

About the author

Columnist

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

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