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Grain marketing in the age of global politics

The world market picture this fall is very different from last November

Nine months from the start of 2019, our market prospects have changed. It’s easy to say that back in November of 2018, we should have priced more grain for delivery this fall.

Last November, markets were holding steady at decent levels, buyer demand was good and grain quality was decent. There was nothing to suggest that markets would fall, so most producers were, at best, priced maybe 30 to 50 per cent on the just-harvested 2018 crop and maybe five to 10 per cent pre-priced on their 2019 crop.

Then Trump took to Twitter to play hardball with the Chinese over trade deficits and intellectual property rights and place trade sanctions on China. China reacted swiftly, with full-out bans on importing U.S. ag products, primarily soybeans.

Then the Huawei incident took place and Canada was dragged into the dispute. Canadian canola being banned from import into China. Canola futures tumbled as the industry tried to come up with a plan to offset losing access to a major trade customer.

World grain trade changed from that point, with what I would call harsh and possibly permanent effects for North American producers.

China is a smart and strategic buyer on the world stage. If or when it puts an import ban on any products coming into China, the country has a well-thought-out backup plan that will work to their economic and/or political advantage.

Early on in Trump’s presidential campaign, he made it obvious that China was, in his mind, the Big Bad Guy, and that he was going to straighten things out. No doubt China was aware it would end up in a battle with the U.S. sooner than later.

When China put tariffs on U.S. soybeans there were a couple of immediate impacts, to China’s advantage. The first was an economic advantage — world oilseed market values fell, allowing China to buy at cheaper prices. The second was a political advantage. When U.S. bean futures values dropped there was an immediate negative impact on U.S. producers — Trump’s support base. This could also be why China is dragging out this dispute — so it will be front and center for the 2020 elections, and may keep Trump from re-election.

China, no doubt, has set up new import deals with South American and Baltic countries to replace the products they once sourced from the U.S. Given the low freight costs from the Baltic region to China, these replacements can likely be bought at a lower cost than U.S. goods.

In South America and the Baltic region, grain production has been ramping up over the last 20 years. There is an opportunity for these countries to further increase production. This gives China and other buying nations the ability to source large volumes from multiple sellers and brings more price competition to the world market. This will have a long-term impact on North American producers’ bottom lines.

Last November, we may not have been able to crystal ball what might come out of the trade war between the U.S. and China. We still don’t know when it may end but it will likely carry on late into next year, after the U.S. election. We don’t know if or when China might repeal its import ban on canola, but we can guess it won’t be any time soon, as it is intertwined with the dispute with the US.

With little crop priced, many farmers are left facing this new reality with massive market exposure. How is that changing our marketing? Are we paying closer attention to our costs of production and breakeven values, so we can lock in a profit when we see one? Are we looking at how to maximize the acres we farm instead of expanding?

Are we reviewing our cost structure, machinery costs, land costs, debt costs to see where we can bring down our overall costs, as world commodity prices come under pressure from expanding production in South America and the Baltic region? Are we selling grains six months or one or two years in advance of production, if or when the market provides a price that provides a decent return per acre?

Have a good and safe harvest.

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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