Political and social factors dominated many of the sessions with suggestions that there will be more geopolitical risks and opportunities going forward. Here are a few things to keep an eye on in this area.

One is Russia as it continues to expand its sphere of influence. This is nothing new given its previous activity in Crimea, Ukraine, Syria and other countries throughout South America and Asia.

Another geopolitical factor is, of course, the continuing Chinese economic evolution. It was said that the recent U.S.-China trade wars should not be viewed as a short-term isolated event but rather a condition whereby the U.S. and China are locked into a long-term strategic trade competition. While China needs oil and food security, don’t base your farm’s future growth strategy on just China. Perhaps India will become the next China, since it too will likely be massive buyers of food. This would be a good development for Canadian farmers.

Another geopolitical issue was increasing American isolationism with the U.S. becoming more self-absorbed. This is being driven by the “Make America Great Again” presidency as well as U.S. oil independence and their petroleum product export expansion. This could mean less U.S. involvement globally, and, in particular, less influence in oil-producing countries.

Turning to demographics and population issues, while the massive rapid urbanization trend in the developing world will likely continue, population growth won’t necessarily. It was stated that only Africa will have population growth going forward. It was forecast that China will lose 300 million people by 2100 due to the declining birth rate. As a result, China may not be the global power we think it will be.

Overall, expect global population to top out at nine billion and then start to go down, contrary to the long-held Malthusian theory many people have subscribed to. Population decline, it was said, is good for the environment but bad for the economy.

This raised an interesting question: “How does capitalism work when population declines?” Economic growth rates always seem to be based on the consumption of more stuff, but if there aren’t more people, they won’t be buying more stuff.

Just look at Japan since its financial bubble burst in the late 1980s. Its aging population has been more or less sideways since the mid-1990s and at the same time, its economy, GDP and stock market haven’t gone anywhere for almost 30 years either.

A USDA Global Desertification Vulnerability Map was presented showing how areas in Africa, Eurasia, Russia, Australia, and even the U.S. are susceptible to drought and dry conditions. Some comments around this were that while North America has around eight per cent of the world’s population and 50 per cent of its water, Asia has 60 per cent of the population but only nine per cent of the water. This will cause a lot of issues, but a positive one could be more demand worldwide for our plentiful Canadian grain.

A statement made by one of the speakers that caught my attention was, as he put it, the most dangerous phrase in agriculture: “We’ve always done it this way.”

While this could apply to many areas of farming, it certainly applies to the world of marketing and hedging. While more and more farmers are using all the marketing tools available to them, there’s a lot more to go.

The speaker noted that two important areas to manage in farming are hedging policy risk and hedging currency movements. While it’s tough to hedge global or domestic politics, currencies are one way through which political risks are translated in to the markets and then converted into monetary form. I agree with his concern especially given that the Canadian dollar has been very quiet over the past few years and global interest rate policies are in a race to the bottom.

Another marketing-related point that was talked about is that there has not been enough pain from low corn, wheat and soybean prices yet to signal a change in what farmers will grow. Market prices will influence what producers grow by buying acres to encourage or discourage what gets put in to the ground. As always, watch commodity price trends.

Another recurring theme was the increasing diversity in the sourcing of grain input supplies. China, it was noted, has been importing soy and rapeseed meal from many new origins as of September 2019 while its use of palm and pea meal has been increasing recently as well.

These new commodity trading relationships have just been developed so they won’t unwind instantly if there is improvement in Canada-China trade relations. This means that canola prices won’t necessarily bounce back up automatically because Canada-China trade discussions improve.

Finally, we have technology factors. We all know of the many technological and scientific advances being made in agriculture but this one was surprising and very interesting.

Apparently an app that uses spectronomy is in development that can be used to assess wheat grade, quality, protein, moisture levels or to measure soil moisture content and other soil metrics. It’s supposed to be as easy as taking a picture. Regardless of whether this type of app ever makes it to market, technology is impacting the way farming gets done. Don’t be surprised about being surprised by the new ideas and products that emerge over the next several years.

Bottom line, farming and the commodity markets are constantly evolving so a conference like GrainWorld provides an edge for farmers who wear many hats. The advantage is combining all these ideas, data and information with our experience to better deal with new risks and opportunities on the farm.

Here’s to proactively looking ahead to the new crop year in 2020!

The post The view from GrainWorld appeared first on Manitoba Co-operator.

As had been the case since the G20 meeting between U.S. President Donald Trump and Chinese President Xi Jinping, traders started the week waiting for China to buy U.S. soybeans. On Wednesday, Dec. 12, the news broke: Reuters reported China had made its first major U.S. soybean purchase in more than six months. The next day the U.S. Department of Agriculture (USDA) confirmed the purchase.

However, the market didn’t jump in reaction. Supposedly, China didn’t buy as many soybeans as traders had expected. Uncertainty still hangs over the market as traders wait for China to buy more. There are whisperings China could buy a lot more beans this year; however, Brazil is still expecting a large crop, which could hold back purchases from the U.S.

In the canola market, traders were also watching Chinese soybean purchases, but the Huawei executive arrest case also had their attention. Canada arrested Huawei chief financial officer Meng Wanzhou at the start of December on request of the U.S., then granted her bail Dec. 12. China wasn’t impressed by the arrest and threatened retaliation for it.

Multiple Canadians have been detained in China. The business community is also concerned, as there have been calls out in China on social media to boycott Canadian brands. The agriculture industry is also concerned China could stop importing products, including Canadian canola.

The canola market is currently in wait-and-see mode when it comes to China. Developments on the trade war and Huawei case happen by the day and it’s hard to predict just where canola will fall in all of this.

There is good news for the canola market, though. A few months ago canola was regarded as overpriced; however, crush margins have improved and canola is now thought to be more reasonably priced. Some are expecting this could see canola become more desirable to buyers and exports could pick up.

Throughout the week, canola followed the downward lead of the U.S. soy complex. A weaker Canadian dollar provided some support for the market; the dollar has also been at the mercy of the Huawei case, as various Canadian stocks have dropped.

The week also saw USDA release its monthly supply-and-demand report. The December report isn’t usually regarded as a market mover and this year’s report was no different. Brazil’s soybean production estimate was increased, which was a surprise to no one. U.S. soybean stocks were also increased — not a surprise either.

Chicago corn contracts traded in a narrow range throughout the week, lacking a true direction. On Friday, Dec. 14, it was corn’s turn to get some China news. Bloomberg reported China will start buying U.S. corn again as early as January. However, news out of China also showed the country had more corn on its hands than previously reported.

Wheat futures were a bright spot on the week, with most contracts on the rise. Reduced global production once again was supportive for markets. Australia is nearing harvest and mature wheat crops there are getting hampered by rains. Reports of low protein are making their way out of the Southern Hemisphere country.

The post Canola trade watches, waits as China developments unfold appeared first on Manitoba Co-operator.

In David Orrell’s book Apollo’s Arrow: The Science of Prediction and the Future of Everything, he writes about the unpredictability and randomness of most evolving systems, especially the financial and commodity markets: “Not only is the market subject to random external effects, but its own reaction to that news will also to some degree be random.”

As a result, many hedging and trading strategies struggle with the lack of success by trying to predict prices.

How can farmers apply the findings of the research presented in these articles to sell their commodities more efficiently and effectively?

The options advantage

The research concludes that markets are random and that we don’t know where they are going. That doesn’t mean you don’t proactively analyze prices to manage your revenues. It just means that option-based protection strategies using puts and calls (similar to insurance) are ideally suited to this type of environment. Options allow you to more effectively manage market exposure and more efficiently adjust hedge positions to balance your physical commodity.

Yet, only five to 10 per cent of Canadian farmers are using open-market exchange-traded risk management tools. Farmers have been hesitant to incorporate hedging into their operations. Why?

Based on hundreds of discussions with farmers, there are three main reasons that, in addition to the myths and misperceptions noted above, make trading psychologically, mentally and emotionally challenging. Option-based strategies using puts and calls offer a solution to the three issues:

• No production commitments or delivery risk.
• Not locking in prices: downside protection you need and the upside potential you want.
• Minimal capital needed with minimal futures contract margin requirements.

Overall, option-based protection strategies offer unique practical benefits because they are:

• Easy to use and understand since they are similar to insurance.
• A better way to set a target price contract. You avoid the all-or-nothing pricing decision. Options protect your downside risk without limiting the upside of your cash market sales.
• A source of staying power to actually capture the longer-term trends that do develop. Since agriculture markets are typically random and non-trending in the short and medium term, you minimize drawdown losses, margin calls and getting “stopped-out,” often associated with futures contract trading.
• Better suited to farm operations whose focus is to produce the grain or livestock under uncertain conditions. Futures better suit processors, soybean crushers or grain elevator companies that have a flow-through operation with built-in profit margin. Options are better designed for farm operations whose focus is to produce the grain or livestock under uncertain conditions.
• Suited to various market conditions, allowing you to determine the level and range of protection you want by selecting from a variety of strategies. With options, you have more tools that are right for the job.
• Suited to your unique market advantage, the physical commodity position.

Forward production or futures contracts take away that advantage by locking in a price and giving away the upside potential.

Bottom line, which revenue profile would you most like to have?:

• No hedge: completely subject to market volatility with all the upside potential but all the downside risk.
• Forward production/futures contract: no downside, but no upside.
• Option-based protection: downside protection you need, upside potential you want.

Your bottom line

We already know that five to 10 per cent of Canadian farmers use all the tools available to fully and properly manage revenue. There are many reasons for this including some very fundamental market-based myths and misperceptions that affect the efficiency and effectiveness of farm marketing.

This research shows incorporating big data analysis and precision farming into a marketing plan gives farm businesses an edge.

You are not trying to beat the market. You are trying to improve the overall success of your farming operation. Your edge is your physical position, option strategies and the fact that you don’t always have to be in the market, or use directional futures or production contracts. (Sometimes the best decision is to be patient and not do anything.)

Exchange-traded commodity options strategies can be used alongside production or basis contracts to enhance delivery and storage decisions.

So don’t play the game of guessing where markets are going. Instead, accept and use uncertainty and randomness to your advantage with option-based hedging strategies. Farm businesses can become more profitable by incorporating a robust, disciplined revenue management program rather than overanalyzing markets or trying to predict prices.

The post Big data and agriculture markets: Part 3 appeared first on Manitoba Co-operator.

To understand this topic we have to ask ourselves, for farm marketing and hedging purposes, are agriculture markets trend driven? Does seasonality exist? Do computer models and indicators work? Let’s look at some numbers.

Trend probability

Serial or auto-correlation is a measure of how much a series of prices is linked, connected or correlated, to itself over time. Think of Newton’s First Law of Motion: a body in motion tends to stay in that same motion.

It is a tool for finding repeating price movements in the same direction based on past movement and the likelihood of that trend continuing. It ranges from +100 per cent correlation, indicating prices are moving lockstep in the same direction, to a -100 per cent correlation, meaning prices are moving in the exact opposite direction.

After crunching all the numbers from one to 12 months, across all the markets important to Canadian farmers, the results support some shorter-term (one to two months) price trendiness but with only a 20 per cent correlation of them moving in the same direction over time. Over longer periods of time, between six to 12 months, farm commodities often tend to move in the slightly opposite direction. This concept, known as trend reversion, suggests that a six-month up period will be followed by a six-month down period.

Bottom line, consistent strong trends are unlikely based on the correlation of price movements over time. It’s not that trends don’t exist; it’s just that they don’t happen often enough on which to base a farm hedging program.

Trend persistency

In 1906, British civil servant Harold Hurst worked as a hydrological consultant in Egypt, to estimate water flow levels and predict how much the Nile River flooded from year to year. The Hurst Exponent he developed is now used as a measure of long-term trends of time series.

It quantifies the relative tendency of a data series to either move back to the average or to move strongly in one direction. It measures the predictability of a trend, ranging from a low of 0 to a high of 1:

• 0.00 – reversion to the mean; up followed by down or down followed by up; “anti-trend”;
• 0.50 – completely random; no trend;
• 1.00 – tendency to move in one direction; high price followed by higher prices, low prices followed by lower prices; strong trend persistency.

Based on this analysis using data from 1986-2015, most farm commodity markets are close to random and do not exhibit strong consistent trends.

Some markets, like hogs, are slightly trend reverting in the short term, meaning they are likely to move up and then down, or down and then up, week to week, month over month, while the Canadian dollar, like most currencies, tends to have large moves over extended periods of time from five to 10 years.

Bottom line, markets can and will trend, however, this analysis shows that while some longer-term 12-month trends do persist, particularly in the loonie, shorter-term one-, three- and six-month patterns tend to be highly random. Essentially, trend analysis results alone are not strong enough on which to base a farm hedging program.

Trend seasonality

Another common and popular indicator associated with commodity markets is the idea of seasonality where markets tend to follow recurring patterns every year.

In the grain markets, decisions are often based on folkloric sayings like, “prices go down in the fall because of harvest pressure,” (historically, wheat has been slightly higher at harvest time — see chart) or anecdotal evidence that there is “a spring rally to buy acres.” Instead of just following the conventional wisdom, let’s see what the data from the past 30 years (1986-2015) tells us:

• While grain and livestock markets do have some seasonal patterns over the calendar year, they are not significantly stronger or weaker than any other six- or 12-month period throughout the year. The only market that does show a consistently strong seasonal pattern is hogs.
• Most movement in either direction measures only between four per cent to eight per cent from seasonal high to seasonal low. While not insignificant, it is not a consistently large enough pattern to count on; this is the case 80 per cent of the time.
• Furthermore, the largest up or down moves have not consistently coincided with the associated strong or weak seasonal time frame. These big moves tend to occur randomly throughout the year. The one exception again is hogs, which more regularly make their biggest up moves during the seasonally strong summer months and biggest down moves during the seasonally weak winter months.

Bottom line, there is no consistent seasonal price pattern strong enough to bet the farm on.

Trend following

Trend following trading systems worked very well during the inflationary 1970s and 1980s, since many commodities were going straight up. While there will always be trends in commodity prices, in the last 10 to 15 years, they have been less predictable, not as easy to implement, and therefore less profitable.

Back-testing uses historical data and computer software to analyze the profitability and risk of a trading system. Back-testing studies were performed on thousands of systems with the Trading Blox Trading System Software using almost 20 years of data on farm commodities: wheat, soybeans, corn, oats, cattle, hogs.

The results? Overall, it was challenging to find a system that generated strong enough performance on which to base a hedging program.

Additional important practical conclusions from this extensive analysis include:

• While some futures trading systems were modestly profitable (five per cent to six per cent gains), they also had big drawdown losses of 50 per cent to 80 per cent and large capital requirements to support the system.
• Some of the trading systems may result in large margin calls and require too much capital, making them impractical for a farm business to implement.
• Finally, most trading software tests only futures-based systems and not options strategies. In general, there is less financial analysis and quantitative studies done on options strategies so you can use this to your advantage.

Bottom line, after testing a wide range of trading systems, the conclusions are that most:

• Demonstrate marginal performance, especially when taking the risk into consideration.
• Are inconsistent year to year.
• Are not practical enough to implement as a farm hedging program.

So if all these approaches don’t yield any strong consistent marketing results, where do you go from here? This will be the topic in the third and final part of this series.

The post Big data and agriculture markets: Part 2 appeared first on Manitoba Co-operator.

The agriculture industry has seen plenty of number crunching focusing on production and operations information technology, crop sciences advancements and high-precision equipment. In this world of big data, farmers gain an advantage by comparing field data, fine tuning fertilizer application rates or studying combine and harvest efficiencies.

Farm marketing and hedging strategies must stay ahead of the curve as well. However, the marketing and risk management side of farming has not received enough scientific analysis and attention to detail.

Over the past 20 years, I’ve read numerous studies, reports and surveys that have shown that only between five and 10 per cent of Canadian farmers use market-based options and futures hedging tools to manage their farm revenues. This compares with around a third of farmers in the U.S.

It’s a bit surprising to see that difference, but there are reasons for it. The two countries have very different grain storage, handling and delivery systems. There’s the lingering decades-long influence of the Canadian Wheat Board’s now-defunct single desk. While the two countries are very similar there are different attitudes towards business and markets in Canada and the U.S. In this U.S. a more developed commodity futures industry has educated American farmers, and promoted and encouraged the use of these tools.

The objective of this three-part series is to address the myths, misperceptions and opportunities in agriculture commodity marketing.

What do we know?

Farm businesses need to implement the marketing advantages uniquely available to them to level the playing field between farmers and other market participants.

Part 1 will review what we know now and where we are today. Part 2 will explore some myths and misperceptions and opportunities in agriculture commodity marketing and hedging. Part 3 of the series offers up some opportunities and provide some real-time marketing and hedging solutions for farm businesses.

What do we know so far?

There have been some attempts to quantify and apply rigorous scientific analysis to farm marketing and hedging with a couple of larger studies done over 10 years ago.

In 2000 and then again in 2006, professors at the University of Illinois undertook performance studies of grain market advisory hedging services for wheat, corn and soybeans. The main conclusions of these studies were:

• “There is limited evidence that advisory programs as a group outperform benchmarks (including selling equally throughout the year), particularly after considering risk.”
• “… the results provide little evidence that future advisory program pricing performance can be usefully predicted from past performance.”
• “… producers selecting top-performing programs based on a given year, and expecting them to continue to be top-performing funds, would actually experience just the opposite result.”

A final question raised by these studies is:

• “… whether farmers can most effectively improve marketing performance by pursuing ‘active’ strategies, like those recommended by advisory services, or ‘passive’ strategies, which involve spreading sales across the marketing window.”

As we’ll see, research shows that the answer is somewhere in the middle: Not by pursuing just active or passive strategies but by implementing a proactive combination of both – ones that are “actively passive” or “passively active.”

Right questions?

With only so few Canadian farmers using all the selling and hedging tools available to them, it shows not enough effort and attention is focused on marketing. Self-admittedly, farmers can grow the best crop in the world, but many agree that their marketing needs improvement.

This is where “farming” big data can help bridge that gap. Wikipedia offers a thought-provoking definition of “big data”: an information set so large and complex it is impossible to process using traditional tools.

If markets are indeed large and complex, that then begs the question: Are traditional marketing tools like production contracts or even futures contracts sufficient to properly manage and fully process your marketing plan? Furthermore, if every hedger, trader, investor or analyst is using the same data analysis, indicators or newsletters, then asking the right question becomes key.

There’s a saying that goes: “What gets measured, gets treasured.” If more time and effort is invested into marketing to fully manage revenue, balance risk, and measure outcomes, then farmers will more likely treasure their marketing results, especially in these volatile times.

One comment I hear a lot from farmers is: “Markets are more volatile than ever!!” Is this true? Yes. Most agriculture markets have become more volatile over the past few decades, some more than others, such as grain markets compared to livestock. For example, wheat volatility trends have doubled since the late 1980s.

So what do you do about this increased volatility and uncertainty? How do you better manage the associated risks? As a first step, the next article in this series addresses some of the main myths and misperceptions that surround commodity marketing.

The post Big data and agriculture markets: Part 1 appeared first on Manitoba Co-operator.

A professional economist told me that, and what she was getting at is the intractable nature of economics. Even the experts can’t agree on what’s happening, or has happened, never mind what will. The best forecasts are at best informed opinion.

Yet despite this, I will confess to having an outsized interest in the field. If money makes the world go around, I have a fascination with the machinery of that system. Somehow over the years I have developed opinions on esoteric topics like monetary policy, interest rates and the role of central banks in the economy.

To put it bluntly, 17-year-old me would probably be mocking me mercilessly as a nerd if time travel were a reality.

But you can’t deny who you’ve become and I read the recent report from Farm Credit Canada on the economic standing and balance sheets of Canadian farms with great interest.

FCC’s chief economist J.P. Gervais has, over the years, become one of the information sources I regularly follow. I might not always agree with him, but he provides the information and sound analysis that gives a good starting point for understanding the issues.

I think he’s dead right in his recent assessment that the lower Canadian dollar has protected you from the worst impacts of the commodity meltdown. It has essentially lost 25 per cent of its value since 2012, the last time it was at or near parity with the U.S. greenback.

Because U.S. dollars are the de facto global currency, when Minneapolis hard red spring wheat futures were at US$9.34 a bushel in 2012, that’s what Prairie farmers received too minus shipping and handling.

As I write this, the MGEX hard red spring index was just a few fractions of a penny over $3 a bushel. But thanks to the declining loonie, your price back on the farm was more like $3.75 a bushel. It’s not great, but it’s pretty clear that represents a better return to your farm than if you were just south of the line in North Dakota.

Of course, prices are still a third of what they were four years ago and it doesn’t negate the fact that many of your inputs are purchased in U.S. dollars. But overall, the low loonie works in your favour.

Because we have a relatively stable and diversified economy, the currency fall, mainly fuelled by a precipitous drop in oil prices, has been relatively modest. If you want to see what a heaping helping of political instability can do to that picture, you only need look south to Brazil.

Back in 2012, the Brazilian real was worth roughly half the value of a U.S. dollar, making US$9.34 corn worth about 18.7 reals. Today the real is worth roughly a quarter the value of a U.S. dollar, making US$3 wheat worth 12 reals. It hasn’t quite completely removed the effect of falling grain prices, but it has eliminated about half the price loss when Brazilian growers get paid back at the fazenda (farm) gate.

Market analyst Pedro Dejnaka, managing partner of AGR Brazil, a consultancy specializing in agriculture commodity markets, sounded the alarm late last fall in Winnipeg at the annual Cereals North America conference.

There he detailed the reality that many of the farmers he worked with in that nation actually had healthier margins than they did during the boom times because their costs had also fallen along with grain prices. In some cases he said growers had reported their margins were over 100 per cent.

“That means Brazilian farmers are earning just as much today, in Brazilian reals, as they were when soybeans were at $17 a bushel,” he said at the meeting.

That translates into a reluctance to take their foot off the gas, he said, adding he suspected other quickly growing grain export economies, such as the Russian Black Sea region, were experiencing a similar currency effect.

I have no crystal ball, and I suggest you take everything I and other professional and amateur prognosticators have to say with a dose of skepticism, but it’s fair to say we’re in murky waters.

As production continues to grow in other areas and farmers experiencing tighter times begin to pursue the age-old strategy of producing their way through low prices, a dangerous dynamic could be coming down the pike.

Given enough time lower grain prices can translate into lower rental rates, farmland values and a general malaise in agriculture.

What goes up can come down, as we saw with farmland in the 1980s and more recently with U.S. housing prices. If farm assets begin to fall in value again in the future we could see some hard times.

A currency cushion can soften the impact but it won’t break the fall entirely.

The post Editorial: Armchair economist appeared first on Manitoba Co-operator.

Most equities and commodities, including wheat, corn and soybeans, dropped sharply in trade the day after the June 23 referendum, while traditional safe-haven investments like gold and the U.S. dollar rallied as investors came to terms with the referendum’s surprise outcome.

“Make no mistake about it: Brexit was a huge change in the macros,” Charlie Sernatinger, global head of grain futures at ED&F Man Capital, said in a note to clients. “It is going to change a lot of hedge fund ideas about the dollar and how to position themselves in commodities.”

Reaction to the British vote added pressure on grains that were already weakened by rain relief for corn and soybean crops in the U.S. Midwest. As the week ended, corn was down 12 per cent, its biggest weekly decline in three years. Soybeans were down 5.6 per cent and wheat was down 3.3 per cent.

“The upset of sorts… has the global marketplace in turmoil, with the U.S. dollar spiking and commodities getting killed,” Matt Zeller, director of market information at INTL FCStone said in a note to clients.

In the longer term, the narrowly won Brexit vote jeopardizes the Comprehensive Economic and Trade Agreement (CETA) and is expected to put a similar negotiation between the EU and the U.S. on ice, analysts said.

“If you’re a processor looking at the 80,000 tonnes of pork we were supposed to get under the CETA deal, maybe don’t break ground on the new plant just yet,” said the University of Guelph agricultural economist Al Mussell in an interview.

If you can consider the agreement to be a spreadsheet, removing Britain has changed every value in every cell.

“That’s going to make for some uncertain times, some unclear numbers and delays. It will also likely mean any of the positive aspect of the deal will be pushed back, though how far is anyone’s guess,” he said.

“It really is an unprecedented situation,” Mussell said. “The agriculture and food sector, as well as other industries of course, is vulnerable to major socio-political shifts, and that could well be what we’re undergoing here.”

He said exit negotiations will be difficult. If the EU takes a hard line against the U.K., it could make the situation worse. If it deals too softly with the British, other member-nations may also choose to exit.

“They’re really on a knife-edge,” Mussell said.

One strategy would be for the U.K. to leave the EU, but more or less simultaneously sign a free trade agreement with it. That could be the best possible outcome, but Mussell admits no one can assign a reliable probability for it happening.

On the other end of the spectrum is catastrophe, something akin to the economic crisis of the 1930s. It might seem a stretch, but Mussell said seemingly innocuous protectionist moves at the time are ultimately seen as the match that lit the fuse and exacerbated a bad situation.

“We could be looking at something similar here,” Mussell said. “Most economists now say the Smoot-Hawley tariff, in 1932, is what really caused the Great Depression, and nobody at the time could have predicted that.”

Canadian trade analyst Peter Clarke said the Brexit vote sends a signal to EU governments about voter frustration and anger. “I expect that the commission will be far too busy trying to shape a new relationship with the U.K. to focus on CETA or TTIP (Transatlantic Trade and Investment Partnership between the U.S. and EU). Even if the U.K. only pulls the trigger in October, work and consultations should have started yesterday,” he said.

Cam Dahl, president of Cereals Canada, said in addition to the impact on trade deals such as CETA, there are also a number of key decisions on agriculture products, such as relicensing glyphosate and approval of GMO soybeans that could be sideswiped by the Brexit vote.

“It remains to be seen if the EU continues to be engaged in these processes, or if they become more inward focused,” Dahl said in a telephone interview.

Whether this is a short-term blip or a more meaningful fork in the road is still unclear, he said.

Rick White, CEO of the Can­adian Canola Growers Association, happened to be in Germany for a meeting in the days before the vote, which included representatives from major EU member nations including the U.K., France and Germany.

“There was a real air of uncertainty,” White said. “The German and French delegates were very clear the U.K. needed to stay in, and the U.K. delegates were saying nobody knew how the vote would go.”

Now that an exit vote is a reality, White expects the uncertainty to continue for the foreseeable future. For U.K. and EU residents that means no clear picture of how things will settle out. For farmers there it will mean questions about the fate of the bloc’s Common Agriculture Policy and whether the U.K. will move to replace it. For Canadian farmers it means the CETA deal is now up in the air, and that policy decisions like relicensing glyphosate or approving GM soybeans drop down the agenda.

“EU politician are likely to be very preoccupied with managing this situation, and issues that are important to us will drop down the agenda,” White said.

He also noted that the U.K. frequently acted as a moderating influence on EU policy, particularly policy affecting agriculture.

“In a lot of ways they were almost an advocate for countries like Canada,” White said. “They had a similar view of adopting technology and making science-based decisions. Without them, there is the risk the EU will veer a bit further in this direction.”

White said he’ll be watching the trendline of the market gyrations, rather than the day-to-day swings, to get a clearer picture of how things are playing out.

The post Brexit fallout extends to Prairie farms appeared first on Manitoba Co-operator.

Day one of the Canola Council of Canada’s main program in San Diego was threaded together with concerns about weak crop prices, volatile markets, food politics and the management skills needed to run businesses in industries that not only involve changing technologies, but also disruptive factors and different expectations.

And as always in recent years across agriculture industries, China came up again and again.

Here are some of the themes that seemed most interesting to me from day one:

Prices are weak; commodities have been routed. Where do we go from here?

Canola prices aren’t terrible, but they aren’t great. The recent sell-off hasn’t made growers any happier about the outlook, although Canadian producers are in a much better situation than American farmers due to the slump in the loonie and the surge in the greenback.

Economic analysts Bill Lapp and Glen Hodgson focused on many of the same themes in their outlooks, with both offering optimism for the market situation a year or two in the future, but both seeming to see this year to be likely stuck in the doldrums.

The rout in overall commodity prices has weakened the ability of crops to rally by themselves, and with big stocks of most crops around the world there’s little reason for a big rally to occur.

As has been common at farm and industry meetings throughout the winter, one of the first matters dealt with has been currency volatility, which has such a massive impact on relative returns for farmers around the world. American farmers have been clobbered as the greenback has soared, Brazilian and Russian farmers have had a great year as the real and ruble have plunged, and Canadians sit in the middle, with a nicely devalued dollar that makes selling Canadian canola more fun than selling U.S. soybeans. Lapp thinks the U.S. dollar is more likely to weaken than strengthen over the medium term.

Both economists discussed the aftermath of the “Commodity Supercycle” and where things are likely to head from here. Lapp thinks commodity prices are probably now building a bottom to the market and that lays the foundation for better prices in coming years, although likely not anything nearly as dramatic as during the supercycle. Most analysts – and most people in the room at the convention – expect crude oil prices to find a range of $35-$75 per barrel in coming years, Lapp noted, and that increase in value from recent prices should offer more support to vegetable oil prices.

He also doubts future crop prices will fall back to the old price ranges of the pre-supercycle era. A new plateau has probably been created, but what that is will take time to see. He’s guessing average prices in coming years of $4.00-$4.25 per bushel for corn and $9.00 per bushel for soybeans.

Hodgson also thinks commodity prices are reaching the bottom, or bottoming now, but thinks there could be further weakness into 2017 before things begin strengthening. He also thinks a higher plateau of commodity prices has probably been reached.

Lapp said the China situation today, with the country threatening to interrupt imports, and its general economic weakness have cast a dark shadow over today’s canola market, but in the coming years until 2020 the outlook is actually relatively bullish, with demand continuing to grow and stockpiles not likely to be onerous.

China worked its way into almost every market element the analysts discussed, with its slowing economic growth and lessening demand for commodities underlying the entire world commodities market. As with currency volatility, China is one of those mega issues that affects everything else.

Food Politics

The canola industry always has to deal with all the craziness of food fads, miracle cures, claims of toxicity in food, attacks on farmers and general misinformation about the safety and risks of food, and to address that situation The SciBabe – Yvette d’Entremont – took the stage and told her tale of how she tries to counter food myths (see my video interview at the top of the page).

While she includes hardcore science in the arguments underlying her responses to food antagonists like The Food Babe, she dresses her responses in an outfit of wry humour and projects them in the media that most people seeking food information get their info from: places like Facebook.

“This is where you guys should be remembering where your audience needs you,” said SciBabe about social media platforms like Facebook.

Consumers are smart and open-minded, but only have limited time to inform themselves and make decisions, so food industry people and farmers need to make their points simply and effectively if they want to counter some of the false information perpetrated on the internet.

Managing an evolving business and society

In recent years effective management has become a much greater concern across the agriculture industry, from the corporate towers of the giant companies to the on-farm operations of growers. Two speakers at the conference addressed critical issues for business managers, one focusing on digital distraction and the other on negotiating effectively.

Curt Steinhorst laid out a disturbing picture of modern workplaces being rife with productivity- and focus-wrecking intrusions that mobile devices and digital communication bring. Digital technology like emails, texts and social media are great for connecting people and allowing communication to flow in many forms, but humans always have trouble focusing, and constant interruptions and stimuli – like notifications on mobile devices – have a much greater impact on productivity than many realize.

As a new generation has grown up spending much less time in face-to-face talking, it is actually becoming harder for people to interact in-person, with many becoming what Steinhorst called “in-person averse.”

Business managers and employers need to lead by example with digital restraint, he said, and communicate in ways that improve workplace productivity and morale. Being able to focus for long periods of time is a crucial element of a productive workplace, but it’s getting hard to achieve that.

Misha Glouberman tackled the subject of negotiations and how they so often go off the rails and fail to achieve their goals. He laid out common mistakes in beginning negotiations, such as laying out hard positions without discovering what the other side’s underlying hopes were. When two bargaining positions clash, sometimes resolution gets impossible, with the parties digging in without really assessing whether “options for mutual gain” are possible.

People also often seem to feel that there is a tradeoff between having a good relationship with somebody and achieving one’s goals, leading either to failing to achieve goals or ignoring the value of the relationship in order to achieve the goal. Instead, people should try to find a way for both sides to benefit and end up with an improved relationship.

A big part of that is “LISTEN,” he said.

“It is in your interest to listen.”

Not only does listening allow you to understand what the other side really wants, but also makes the other side of a negotiation more likely to listen to you.

Ed White reports for The Western Producer, a member of the Glacier FarmMedia network. Follow Ed on Twitter at @EdWhiteMarkets

The post VIDEO: Canola is weak today, but hope glimmers on the horizon appeared first on Manitoba Co-operator.

The post GRAINS-U.S. wheat hits 2-month low as Plains harvest advances appeared first on Manitoba Co-operator.

The post GRAINS-Old-crop soy up 1.1 pct as supplies tighten appeared first on Manitoba Co-operator.