Firstly, I am writing 10 days prior to the U.S election and you’ll be reading it a month afterward, so my initial comments will or will not be validated by the time you read the article. The market prices in expectations prior to their occurrence — and surprises contrary to expectations are what really move individual stocks and the market at large. Examples of expectations pre-priced by the market include politics, interest rates and corporate profitability.

Politics

The market is currently pricing in a Trump victory. He has momentum with his polls having been lowest just after the Trump/Harris debate, and he is in the lead in every swing state, albeit by narrow margins.

The market was very nervous about a Trump win eight years ago, but less so now that he is a known political commodity (whether you like him or not) and his tax cut and regulation reduction promises are good for the economy and the market. Negatively, there is concern tariffs will reignite inflation, and tax cuts will expand the deficit. Both these factors are contributing to a unique situation where, while short-term interest rates are being cut, long-term rates are rising. U.S. 10-year bonds have risen from 3.65 per cent to 4.24 per cent since the Fed announced its first 0.5 per cent rate cut.

If a surprise Harris win occurs, I think we will see a short-lived stock sell-off and bond rally. However, as written many times, the money is made taking a long-term perspective, so I have no plans to attempt outguessing these short-term gyrations.

From a longer-term perspective, markets loosely follow a presidential cycle. The third year of the cycle, 2023, is by far the best year, with an average after inflation gain of 13.5 per cent. The worst year by far is the second year, with an average real gain of just 3.3 per cent. The first and fourth years are average years, but fourth-year gains tend to come after election uncertainty clears. The theory behind these variations is that new administrations implement their tough policy changes early in their mandate, and by the third year are doing their utmost to prime the pump for a robust economy in the upcoming election year.

That said, I don’t see these as tradeable variations. The worst second year in stocks is better than average bond market returns, and averages are made up of extremes. Just because something happens on average, doesn’t mean it will happen this time.

The presidential cycle may partly explain the economic cycle but is a long way from explaining the complete cycle, with the current one being distorted by a very unusual pandemic episode.

Interest rates

The economic cycle moves from boom to bust and back to boom. A robust economy generally leads to higher inflation and increasing interest rates, which act as an economic brake slowing growth and inflation, once again leading to lower interest rates to revive the economy. Governments and the Federal Reserve (Bank of Canada, in our case) try to moderate the boom/bust cycle through spending and short-term interest rate changes. However, the current cycle has seen unrestrained government spending almost everywhere, which is concerning.

Profitability

With those basic explanations, let’s get back to the original question. Naturally, stocks tend to do better in robust economies when sales and profits are growing. I examined historical bull and bear market data. Since 1928 we have experienced 22 bull markets interrupted by 22 bear markets defined as a loss of 20 per cent or more.

The average bear market lasted almost exactly a year, with average losses of 36.6 per cent, and a range from negative 20.6 to 83 per cent. The most recent bear market ended on Oct. 12, 2022.

The average bull market lasted 3.3 years and experienced a gain of 142.2 per cent, with a range of 20.8 to 582.1 per cent. The shortest bull market of 98 days occurred in 1932, and the longest bull market occurred from 1987 until 2000. Coincidentally, the average length of a bull market plus bear market equals a presidential term. The current bull market is just over two years old and has gained 63 per cent, at time of writing. Therefore, the current bull is well short of average bull market gains and duration.

That doesn’t mean it couldn’t end tomorrow, or it couldn’t go on for another five years. Averages are made up of extremes, which the wide range of outcomes illustrate.

It is also important to note that while recessions and bear markets often occur together, that is not always the case. There was a significant recession in 1991 without a bear market, and the 2022 bear market occurred without a recession, even though one was widely predicted.

Renowned investor John Templeton said, “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” You will hopefully recall numerous 2021 articles warning about euphoric speculation that was occurring (for example, “Specs and SPACs,” Grainews, March 23, 2021, page 20). That speculative era ushered in the 2022 bear market. While valuations are high, we are not currently experiencing significant speculation as in 2021.

Combining the above thoughts on three key cycles with the current optimistic but not euphoric tone, I think, but certainly don’t know, the bull will continue until its legs grow wearier.

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Keep it Clean is a joint initiative of the Canola Council of Canada, Cereals Canada, Pulse Canada and the Prairie Oat Growers Association. The group releases an annual product advisory with information on potential market risks associated with agrochemical use.

Sethoxydim, a post-emergent herbicide, is one of the products removed, largely because BASF stopped making the product.

Chlorothalonil, a fungicide active ingredient, was the other removal. It was added to the list a few years ago, after the European Union prohibited all agricultural use of the product and dropped the maximum residue limit (MRL) to a default level of 0.01 parts per million.

MRLs are the legally permitted amount of pesticide residue that can remain in or on food and feed products.

“At the time, we didn’t have much real-world data to understand what the potential trade risk was,” said Greg Bartley, Pulse Canada’s director of crop protection and crop quality. “So, it was more of a precautionary approach to make sure that we aren’t causing unnecessary trade concerns.”

After residue testing at the farm level, the organization considered the risk to be virtually nonexistent.

“It shows that even if farmers are using this product according to label directions, it doesn’t cause a trade concern,” said Bartley. “This gives us enough confidence to remove (chlorothalonil) from the advisories, which is always good news.”

But the product isn’t out of the woods yet. A proposal to ban all uses of chlorothalonil is being reviewed by Health Canada’s Pest Management Regulatory Agency, which started looking into the chemical shortly after the EU ban. Bartley said the PMRA will likely announce its decision this year.

“We’re watching that one closely,” he said, adding that the product is important to pulse growers.

Keep it Clean’s 2024 advisory contained no new products on its list for cereals this year, and it hasn’t made any changes to advisories for other crops since last year’s release.

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Beijing announced the move on Wednesday, a day after the EU published a revised tariff plan for China-made electric vehicles (EVs).

Here are the main issues:

Why is China taking action?

Beijing is assessing whether EU dairy imports are benefiting from subsidies. Its probe comes as the EU evaluates a plan to impose tariffs of up to 36.3 per cent on imported Chinese-made EVs subject to a vote in October.

France, Italy and Spain backed the proposed tariffs in July, while Germany, Finland and Sweden abstained, government sources have said.

What countries are most at risk?

France stands to be worst affected as it exported $211 million (C$287.1 million) worth of the targeted dairy products last year, Chinese customs data showed, mostly milk and cream.

Italian, Danish, Dutch and Spanish farmers last year sold dairy goods subject to China’s new probe worth $65 million (C$88.4 million), $55 million (C$74.8 million), $52 million (C$70.8 million) and $49 million (C$66.7 million), respectively, the data showed.

EU exports of milk powder to China, worth $357 million (C$485.7 million) last year, are not subject to investigation.

France also supplied 99 per cent of China’s imported brandy last year as well as some of its pork, making it the most impacted country if Beijing acts on each of the investigations.

Paris has repeatedly voiced concerns about the surge in Chinese EVs into the European market and taken measures domestically to ensure that French subsidies for buying EVs do not benefit vehicles made in China.

Major pork exporters Denmark, the Netherlands and Spain are also under pressure from Beijing’s probes.

What might happen?

An anti-dumping investigation into imported European large-engine gasoline cars could be on the cards, according to the state-owned Global Times, which first reported that Beijing was considering the probes.

Such an investigation would hit Germany hardest. Its exports of vehicles with engines of 2.5 litres or larger to China were worth $1.2 billion last year, Chinese customs data shows.

—Additional reporting for Reuters by Leigh Thomas in Paris

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India is the world’s biggest vegetable oil importer and spends an average of $8.5-$10 billion annually on edible oil imports.

The country produces less than half of the roughly 24 million tonnes of edible oil that it consumes annually. It imports the rest, buying palm oil from Indonesia and Malaysia, soyoil from Brazil and Argentina, and sunflower oil, mainly from Russia and Ukraine.

India does export agricultural commodities such as sugar and rice on the world market, but domestic oilseed production is nearly six times lower than rice and wheat on average.

“The government will invest more than 110 billion rupees via the National Mission on Oilseeds and Oil Palm to provide farmers everything possible, including better seeds and technology,” Modi said on Twitter.

“When India is emerging as a major exporter of farm goods, we should not depend on imports for our edible oil requirements,” Modi said.

India’s vegetable oil imports have surged to 15 million tonnes from 4 million only two decades ago, according to traders and industry officials. They said imports could reach 20 million by 2030, boosted by a growing population with higher incomes and a taste for calorie-laden curry and fried food.

Atul Chaturvedi, president of the Solvent Extractors Association of India, an industry body, said it was a giant step to help India to become self-sufficient in edible oil.

Earlier this year, Reuters reported that India was expected to announce a five-year plan to cut vegetable oil imports by providing farmers with financial incentives to switch to oilseeds from grains.

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“I would say it’s coming down quite a bit more,” said Mike Fleischhauer of Eagle Commodities in Lethbridge.

The barley and wheat harvests are running behind normal in both Saskatchewan and Alberta, with more rain over the past week causing further delays. As a result, there is still a large amount of grain to come off the fields, some of which farmers will be looking to unload off of the combine.

The later harvest likely means more wheat will be grading as feed, with downgrades to barley quality also likely and an increased risk of frost damage.

While adverse conditions may hurt quality, total grain production is still expected to be large overall.

While there are pockets of drought and other areas dealing with excess moisture, Fleischhauer said there were also plenty of bumper crops.

Statistics Canada estimated Canada’s 2019 barley crop at 9.99 million tonnes, which would be well above the 8.38 million tonnes grown the previous year and the five-year average of 8.1 million tonnes.

Feed barley in southern Alberta’s Feedlot Alley is currently priced around the $205-$210 per tonne area, with some offers already coming in below the $200 per tonne mark, according to Fleischhauer. That compares with prices that had topped out in the $290-$300 per tonne range in June.

On top of seasonal harvest pressure weighing on prices, “we don’t have any international markets for barley and wheat,” said Fleischhauer.

While solid exports had cut into domestic supplies over the past year, Canada’s diplomatic dispute with China has caused that demand to dry up.

— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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Winnipeg MP Jim Carr, previously the minister for natural resources, received the trade portfolio in a cabinet reshuffle on Wednesday, when Prime Minister Justin Trudeau said finding new export markets was a priority.

Canada sends 75 per cent of its goods exports to the U.S., which imposed tariffs on Canadian steel and aluminum at the end of May and is now mulling punitive measures against autos.

“There is goodwill towards Canada, there is a willingness to hear our story, and I think there is an awful lot of affection for Canada, for our values… for our political leadership,” Carr said in a phone interview.

“So I think there are all kinds of ways in which we can capture the world’s attention at a number of levels and that is what we will do.”

Although Trudeau took office in November 2015 stressing the need to boost trade with major emerging markets like China and India, the government has had little success.

Trudeau visited Beijing last December but the two sides failed to agree on the launch of talks on a free trade treaty.

Officials say negotiations on a potential deal with India have stalled.

Carr, whose title is trade diversification minister, did not give details when asked about his travel plans for the next few months. He said he had not spoken to his U.S. counterpart, U.S. Trade Representative Robert Lighthizer.

“The reality is that 75 per cent of our trade goes to the United States and it continues to be our most important trading partner,” he said.

A senior Canadian diplomat on Thursday told a U.S. Commerce Department hearing into the auto tariffs that if Washington imposed the measures, Canada would respond with sanctions.

Brian Kingston, vice-president of international issues at the Business Council of Canada, said Ottawa should launch trade talks with China and consider boosting ties with other Asian nations.

“We are literally standing at the edge of a cliff now and if we don’t start trying to make some headway on diversification, we’re even more at risk than we were before,” he said by phone.

In several tweets Thursday, Carr reiterated Canada is “absolutely on track to be among the crucial first six” member nations to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The CPTPP trade pact can only enter into force 60 days after at least six of the 11 signatories’ governments ratify it. For the remaining five nations, the deal would enter into force 60 days after the date of their respective ratifications.

For Canadian farmers, a CPTPP deal would grant preferential market access to member countries including Japan, Vietnam and Malaysia, where Canadian exports now face tariff walls. Export-oriented farm commodity groups have pressed for Canada to be in the first tranche of signatories to ratify the deal.

— David Ljunggren is a Reuters political correspondent in Ottawa. Includes files from AGCanada.com Network staff.

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Farmers overwhelmingly supported Trump in the 2016 election, welcoming how he championed rural economies and vowed to repeal estate taxes that often hit family farms hard.

Now those same farmers are seeing crop prices fall and export markets shrink after Trump’s tariffs triggered a wave of retaliation from buyers of U.S. apples, cheese, potatoes, bourbon and soybeans.

“A lot of people in the ag community were willing to give President Trump the benefit of the doubt,” said Brian Kuehl, executive director of Farmers for Free Trade. “The reason you are seeing people increase the pressure now is because the pressure is increasing on them. Now the impact is really starting to hit. It is not something you can just take lightly.”

His group, along with the U.S. Apple Association, will start running television ads on Tuesday attacking Trump’s tariffs in Pennsylvania and Michigan, apple-growing states that could play a role in which party controls Congress after the November elections.

Trump, a Republican, has said farmers will not become a casualty in any trade war, floating ideas such as subsidizing those hurt by tariffs.

Even before trading partners imposed tariffs, U.S. farmers were facing a tough year. Net farm income was expected to fall 6.7 per cent to US$59.5 billion in 2018, according to the U.S. Agriculture Department.

Now an even more bearish tone hangs over agricultural markets due to trade spats with NAFTA partners Canada and Mexico, plus mounting tensions with China and Europe.

After Trump imposed tariffs on steel and aluminum imports, Mexico imposed a 20 per cent tariff on imports of U.S. apples, potatoes and cranberries.

Last week, Trump imposed US$50 billion in tariffs on China. Beijing retaliated with a 25 per cent tariff on U.S. soybeans and other goods starting July 6, sending soybean futures to a two-year low and throwing into doubt forecasts for U.S. soybean exports to rise 11 per cent this marketing year.

China’s tariffs could contribute to a 30 per cent drop in income for Ohio corn and soybean farmers this year, said Ben Brown, manager of an Ohio State University farm program.

If the tariffs stay in place, net farm income in Ohio could drop as much as 63 per cent in 2019, he said.

Last week, the American Soybean Association said it was disappointed and for weeks had implored the Trump administration to “find non-tariff solutions to address Chinese intellectual property theft and not place American farmers in harm’s way.”

The group added that the White House has ignored its requests for meetings.

The timing also hurts farmers, as it is too late in the season for farmers to adjust planting plans.

“Crops are in the ground and will soon be ready for harvest,” said Casey Guernsey with Americans For Farmers and Families. “We need the certainty of knowing that there will be market availability in order to sell them.”

— Mark Weinraub is a Reuters commodities correspondent in Chicago.

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China listed U.S. goods from soybeans to beef that could potentially incur a 25 per cent import tariff by the end of May if Washington carries out its threat to raise similar duties on $50 billion in Chinese goods (all figures US$).

A trade war would be a blow to the U.S. beef industry, which has seen an increase in year-over-year supplies even as prices have been falling for market-ready cattle, partly due to seasonal factors.

In June 2017, U.S. beef exports returned to China after a 13-year absence over BSE worries. Some restrictions remain in place along with a 12 per cent duty on beef imports from the U.S., according to the U.S. Meat Export Federation (USMEF).

USMEF data showed U.S. beef exports to China after the market reopened in the second half of 2017 totaled 3,020 tonnes valued at $31 million.

Over the past nine months Chinese interest in U.S. beef has steadily gained momentum, said USMEF CEO Dan Halstrom in a statement. Additional tariffs on U.S. beef will risk opportunities for further growth, he said.

“USMEF is hopeful that this trade dispute can be resolved without China introducing additional obstacles for U.S. beef,” Halstrom said.

Kent Bacus, director of international trade and market access for the National Cattlemen’s Beef Association, also in a statement, said it was “unsettling” but not surprising to see U.S. beef targeted for retaliation.

“This is an inevitable outcome of any trade war. This is a battle between two governments, and the unfortunate casualties will be America’s cattlemen and women and our consumers in China,” said Bacus. The Trump administration has until the end of May to resolve the issue, Bacus added.

— Theopolis Waters reports on livestock markets for Reuters from Chicago.

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“This sort of moves us beyond even where India has been before in pulse import duties … more than a decade ago we were at 10 per cent. So to sort of move to the maximum allowable for peas under WTO rules has surprised us all,” said Gordon Bacon, CEO of Pulse Canada.

“That is a very horrible news for us as exporters … India is our biggest buyer of pulses, of peas. So if India doesn’t want to buy, where will our yellow peas go?” said Meiyun Li, general manager with ADM Ag Industries in Saskatoon.

The Indian government imposed the 50 per cent import tax on peas due to pulses falling below the government-set support level in the local market, according to Reuters.

India mainly imports peas from Canada, Russia, the United States and France. Last year the country’s pea imports jumped up 41 per cent from the previous year to a record of 3.17 million tonnes, according to reports.

The latest news from India comes on the heels of silence for the last month in regards to Canada’s pulse fumigation exemption. At the start of October the fumigation exemption Canada had for importing pulses before arrival into India expired, since then the industry had been waiting to hear if it would be extended.

With the latest news, Bacon said Canada is left with more questions than answers.

“We’re in contact with Ottawa to understand the operational details of all of this … the questions (we’re asking are) does it have any impact on India’s fumigation rules? Does it apply immediately, including vessels on route or that may be docking in India imminently?” he said.

In October it was reported Canadian pea exports were down from previous years. As of Oct. 29 Canada had exported only 849,000 tonnes of peas, which is half-a-million tonnes behind exports from the same time last year.

In 2016, Canada exported a total 3.345 million tonnes of peas, according to the Canadian Grain Commission.

According to Li, the outlook for the Canadian pea export market is bad. Ukraine and Russia have had big crops and can offer peas for export at lower prices. As well Li said demand in China is down.

“I’m hearing the destination price is going down because of the big importers (in China who) import cargo in bulk vessel … the volume is big, and the bulk vessel just arrived … the importers will sell the product at a lower price. They won’t get their cost back,” she said.

The only place where there is interest for Canadian peas is in the U.S., according to Li. The U.S. pea crop is down this year due to the drought.

“Right now (the U.S. is) buying yellow peas from southeast Saskatchewan only because that origin is closer to the U.S. But they cannot consume all of our pea production. We still need to find other demand,” she said.

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Low river levels and backups at aging locks have slowed navigation on the Mississippi and its tributaries and driven the cost of hauling Midwestern crops to Gulf Coast export terminals to near-record highs.

As newly harvested supplies reach the market, elevators with barges on hand are prioritizing loading soybeans while storing corn if they have space, traders and barge brokers said.

Cash soybean premiums at several large river terminals in the St. Louis area fell to the lowest point since at least 2011, while soy processors and inland elevators also dropped bids amid ample available supplies, grain merchants said.

“There are a lot of trickle–down effects that are being felt throughout the whole industry. It starts with the low water on the rivers and the trouble getting bushels where they need to be in exporters’ hands,” said Terry Linn, analyst at Chicago brokerage Linn and Associates.

The grain handling woes come as farmers are beginning to harvest bumper corn and soybean crops amid weakening harvesttime prices, with soybean stocks at a decade high and corn supplies at the biggest in 29 years.

“People are running out of space. Everybody’s been stuffing their bin space with corn and shipping beans. Now they can’t find enough barges when they need them to move the beans,” said a barge broker who asked not to be named.

Shippers that have barges on hand are loading them with less grain to keep them from grounding in parched rivers, while barge lines are reducing the number of barges per tow to navigate the narrower shipping channel.

Barges in the Memphis to Cairo, Illinois, market traded at an all-time high while spot barges on the lower Ohio river were booked at a level reached just once, in September 2014.

Exacerbating the situation, the Ohio River was temporarily closed on Monday for emergency lock repairs, according to the Waterways Council industry group.

The lock has resumed operating, but a queue of more than 65 towboats was waiting to pass, a backlog that could take more than five days to clear, barge operator American Commercial Line said in a daily newsletter.

— Karl Plume reports on agriculture and agribusiness for Reuters from Chicago.

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