The world is full of threats and opportunities for Canadian farmers, says a market analyst.
Chuck Penner, analyst with LeftField Commodity Research, recently highlighted a few in key consuming and competing countries during a presentation at CropSphere in Saskatoon.
Some of the biggest threats come in the form of logistics projects around the world.
China is spearheading the One Belt, One Road project, which is a railway that will travel the ancient Silk Road from China through Kazakhstan and the Middle East to Russia and then Western Europe.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
“That’s a key risk that we have in the marketplace,” said Penner.
It puts China within striking distance of Black Sea region producers of wheat, corn and soybeans as well as minor crops like flax.
“They will then have a freight advantage into China, and that’s a little bit of a scary thing and it’s already being built,” he said.
China is also contemplating investing in a $10 billion railway project linking the Atlantic port of Acu in Brazil to a Pacific port in Peru, creating a more direct route for Brazil’s corn and soybeans to China. It would save $80 to $100 per tonne in transportation costs.
“That’s a big deal,” said Penner.
He also touched on the threat of converting land to crop production in the coming years.
Russia has 100 million acres that could be brought back into production and that may well start happening because the government has set a goal of boosting grain production to 120 million tonnes a year in 10 years from 105 million tonnes in 2015.
Brazil has 250 million acres of pasture and other land that could be converted to crop production without knocking down a single tree in the rainforest.
However, the big one is Africa, where only 10 percent of the 990 million acres of land suitable for agricultural production is being used. A big chunk of that could be growing crops in the future.
“Now that’s not going to happen for a long time, but I think it’s going to happen at some point,” said Penner.
Government policies could also affect Canadian farmers.
China’s lucrative corn subsidy has led to what some analysts believe is a government stockpile of 175 million tonnes.
Beijing wants to limit feed grain imports until it gets rid of its own high-priced supplies. It has launched anti-dumping and countervailing duty investigations of U.S. distillers grain.
“That’s a key risk in the outlook,” said Penner.
He said China imported more than 10 million tonnes of barley in 2015 and was an important customer for Canadian exports. That business could be at risk if the government expands its interventionist policies.
Beijing is talking about decreasing corn acreage, which could boost plantings of soybeans, barley and minor crops such as dry beans.
China has almost disappeared as a dry bean exporter.
“They could be back as an exporter, and that has at times caused some issues in the dry bean market,” said Penner.
China is also sitting on huge stocks of rapeseed oil.
“The one saving grace in that case is they’ve been sitting on some of this stuff for so long there’s now concerns that the rapeseed oil has gone rancid, so they won’t be able to use it,” said Penner.
Beijing no longer provides rapeseed growers with price support. Instead, it is now a provincial responsibility. Analysts believe the subsidies won’t be as lucrative, which will reduce acreage.
“That could help us in terms of our canola exports,” he said.
Argentina’s new government has eliminated export taxes on corn and wheat and is reducing them on soybeans.
Those taxes causes growers to shift out of corn and wheat and into crops such as barley, chickpeas, beans, flax and canaryseed.
“Now that they can grow corn and wheat and export them freely, maybe that will take some of the pressure off of these special crops and could be helpful for us,” said Penner.
He also anticipated more market-distorting wheat policies in Russia.
“I heard an estimate that in six of the last 10 years, the Russian government has either imposed export taxes or put on some kind of export restrictions. That causes all kinds of turmoil,” said Penner.
Two of the biggest domestic risks for Canadian producers are rising oil prices and a strengthening Canadian dollar compared to the U.S. dollar.
“If we get back to par, you’d see $3 (per bushel) evaporate from your flax prices or 15 cents (per pound) evaporate from your mustard prices,” he said.
