Assumptions and reasonable expectations can be risky when the world goes crazy.
That’s true in agricultural markets right now, with United States President Donald Trump’s multi-front trade war just beginning to bring economic bloodshed.
It makes hedging everyday production risks more fraught than usual.
Before I discuss these risks a bit more, let me muse on a personal, non-agricultural example.
I just received my paternal grandfather’s First World War files from Britain’s National Archives. My grandfather signed up on Oct. 29, 1914, at a time when people expected the war to be done by Christmas.
He went home on April 3, 1919.
I don’t know what his expectations were, and he definitely didn’t try to get out of the military during the war, but I doubt he expected in 1914 to still be in uniform in 1919.
When I was down in Iowa a few weeks ago, I was struck by those in the U.S. hog industry expecting the present trade wars to be quickly resolved by Trump, an alleged master negotiator.
Will it all be over by Christmas?
Maybe. But that’s a huge question that makes pricing and hedging continentally and internationally traded commodities a riskier proposition on both sides of the border.
We rely on our local cash market prices generally reflecting North American and world prices. Our basis should just represent transportation and other regional discounts and premiums.
The trade wars are now breaking basis assumptions, especially if they last longer than a few weeks. U.S. pork prices might diverge significantly from Canadian pork prices if Mexico and China maintain their tariffs.
Canola might already be feeling the impact of China’s threats to hit U.S. soybeans with tariffs.
What if Trump decides to broaden his trade war with Canada onto the agricultural front, with tariffs on Canadian grains, pigs or cattle? He’s certainly fulminated about Canadian farmers.
As I noted last week, dark spirits have been unleashed and their affects are impossible to predict.
But I’d suggest Canadian farmers not make any glib assumptions about this present trade war ending by Christmas.
If we’re lucky, it will. But that didn’t work out in 1914 and it might not now.