Significant disruptions underway to markets

The future of agricultural trade is in uncharted territory. Buckle up. It could be a rough ride.

It’s very difficult to make sense of it all. The best analysis I’ve seen comes from Al Mussell, Douglas Hedley and Ted Bilyea of Agri-Food Economic Systems based at Guelph, Ont., in a just-released report called Disarray in Agricultural Markets.

The factors are well known: China has stopped buying Canadian canola, China and the United States are in a protracted trade dispute that has seen China move to other soybean suppliers such as Brazil and Argentina, and African swine fever is decimating China’s hog sector, greatly reducing the demand for imported feed grains.

Any one of these factors would be a big market disrupter. Taken together, the disruption is unprecedented. Normal doesn’t live here anymore.

Increasingly, it seems naive to assume that the U.S. and Canada will work out their respective trade issues with China, thereby returning everything to the way it was before. Even if hostility subsides, new trade patterns have been established. It’s also possible that any new trading arrangement forged between the U.S. and China could be to the detriment of Canadian trade. We could be left on the outside looking in.

You might dismiss the trade issues by thinking China will need to buy grain somewhere for its people. However, the demand side of the equation has been altered dramatically by the outbreak of African swine fever.

No one knows the extent of the devastating disease, probably not even the Chinese, but credible estimates suggest their sow herd could shrink by 15, 20 or even 30 percent. To put that in perspective, a 20 percent loss would be more sows than in all of the U.S.

With a greatly diminished pork sector, and huge stockpiles of grain established over many years, China can cut grain imports dramatically. On the other hand, they are likely to be in the market for large volumes of pork. In fact, as the report from Agri-Food Economic Systems points out, world export volumes of pork pale in comparison to the potential Chinese shortfall. Therefore, it’s reasonable to expect beef and chicken demand will also be affected.

Get set for some startling statistics and dramatic price volatility in both the grain and livestock sectors. June hog futures increased more than 25 percent in the first three weeks of March. U.S. soybean stocks are about double the normal size for this time of year. The futures price of canola dropped by more than $14 a tonne on March 22.

What adjustments might farmers make in their seeding intentions in light of the turmoil? In the U.S., the billions of dollars in government support targeted mainly at soybean production to compensate for Chinese tariffs could keep acres in soybeans that might otherwise switch to corn.

For Canadian farmers, we know that China has been a huge market for our canola, peas, flax and barley. Does it make sense to switch some of those acres to other crops like wheat and oats? It’s difficult to do an informed analysis when price and movement projections harbour so many variables.

We might be entering a time of strong markets for cattle and hogs, with correspondingly difficult markets for many, if not all of the grains, oilseeds and pulse crops. Seldom has there been so much uncertainty.

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