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Editorial: Volatility likely to linger

When you are as dependent on exports as Canadian farmers, the ability to weather volatile markets has to be part of the business plan.

The Canadian Agri-Food Trade Alliance says Canada exports half of the beef and cattle produced, 70 per cent of its soybeans, 70 per cent of its pork production, 75 per cent of the wheat, 90 per cent of its canola and 95 per cent of its pulses.

That export focus, a function of productivity gains and Canada’s relatively small population, is much higher than many of its major competitors. The U.S., with approximately 10 times the population, exports only about 20 per cent of its agricultural production. Mexico is a major exporter of vegetables and fruits but a net importer of major grains, meat and livestock.

However, because the U.S. markets are the global price setter for trade in agricultural commodities, Donald Trump’s meddlesome approach to rewriting trade deals has far-reaching effects.

In fact, trade tensions have defined agricultural markets in 2018, Farm Credit Canada said in a report released this week. The actions and reactions have affected prices, but also the flow of trade.

For example, the U.S. price of soybeans dropped from US$10.40 per bushel to US$8.42 per bushel over a period of 17 weeks this past summer due to the imposition of tariffs and counter-tariffs against major trading partners. Chinese import tariffs diverted global trade flows of hogs, corn and other commodities for all traders, not just the U.S.

Canadian hog producers receive prices based on U.S. prices with currency and other factors calculated into the mix. When tariffs by China and Mexico disrupted the U.S. market it didn’t take long for Canadian hog prices to show the full effect.

China’s tariff on U.S. soybeans in June affected U.S. producers directly, but it also hammered the price that many soybean producers received, including Canada’s. Chinese and Mexican tariffs on U.S. pork exports tapered demand for the U.S. product, and weakened hog prices in North America,” the FCC said. Canadian hog prices have at times dipped to below break-even as events south of the border have played out over the year.

FCC analysts looked back over a 30-year period to assess how periods of volatility have affected demand for Canadian agricultural commodities. It found it can cause short-term declines in demand. But for commodities such as canola and wheat, in which Canada holds major global market share, those effects are more muted than for soybeans, beef, cattle and pork.

Despite short-term impacts, the long-term trends show that Canada’s exports of those commodities have steadily grown over the past three decades.

That trend should continue as Canada continues to diversify its trading relationships with deals such as the newly ratified Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). CAFTA predicts that deal could increase Canada’s agri-food exports by up to $2 billion annually.

The scene south of the border is less positive. While Trump’s posturing has won him bragging rights and cheap cheers at the podium, it’s not paying off in America’s heartland.

The Farm Foundation, an independent U.S. think-tank, commissioned a team of Purdue University economists to analyze the benefits of the new USMCA (a.k.a. NAFTA 2) against the cost of retaliatory tariffs imposed on U.S. exports as a result of his hit on aluminum and steel.

They concluded the effects of those responses along with the Chinese tariffs on U.S. soybeans far overshadow any gains for U.S. farmers under the USMCA. Assuming it is ratified, USMCA could expand U.S. agricultural exports by approximately $450 million. However, “the retaliatory tariffs implemented by Canada and Mexico on U.S. agricultural exports will reverse the modest export gains from USMCA — a decline of $1.77 billion rather than a gain of $450 million,” they say.

The effects multiply. “In the broadest possible context, with all measures and countermeasures, U.S. agricultural exports will decline by around $8 billion — similar in size to withdrawing from NAFTA. These negative trade impacts will be reflected in lower incomes for U.S. farmers, reduced land returns and labour displacement.”

Another study out of Iowa State University noted that state alone was likely to lose between $1 billion and $2 billion in economic activity this year. Author John Crespi noted that, like the farm crisis of the 1980s, policy from Washington is driving the issue.

Plus, the U.S. taxpayers are in the process of paying $12 billion in compensation to farmers — and there was more aid promised late last month.

It’s crazy, which is exactly why Canadian farmers are well advised to assume volatility will prevail in the days, months and possibly years ahead.

About the author

Vice-President of Content

Laura Rance

Laura Rance is vice-president of content for Glacier FarmMedia. She can be reached at [email protected]



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