Get ready to learn (or re-discover, if you’re old enough) what it’s like to be a residual supplier.
With access to the Chinese market blocked, Canadian canola growers are likely to see their commodity chasing demand elsewhere. For pea growers, not only is Chinese access in doubt, but Indian access is worse, and that commodity too will be chasing after buyers.
That’s the bottom line I got from reading MarketsFarm’s China Trade Report, which it is distributing to its clients and those who sign up for a free trial of the new Canadian crop markets advisory.
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“The loss of the Chinese market will push canola prices lower to try to regain other traditional markets,” writes analyst Robert Li in the report.
“The message is clear: sell canola and soybeans on rallies, even if prices are not what they have been in recent years.”
Those words bring me a powerful feeling of nostalgia. Not in a good way.
They recall the days of the early 2000s and most of the 1990s, when selling on rallies was the default advice of almost everybody. Talking about chasing little pieces of demand was most of what I did when I called analysts.
That’s the life of a residual supplier, who lies far from markets that have ample world supplies and numerous sources. How do you make sales to those markets? By slashing prices. Those markets don’t come to you. You go to them.
The MarketsFarm report doesn’t see the Chinese canola market opening until well into 2019-20, if it opens at all, and that jibes with what most people in the industry think.
That will lead to heavy stocks within Canada and no easy way to move them, especially if the United States-China trade war continues and keeps U.S. soybean stocks backed-up inside North America.
Canadian canola will be fighting for customers within North America as buyers look at ample stocks of vegetable oil crops, and looking for relief offshore even as the biggest importer refuses to consider Canadian canola.
I looked at the issue of becoming a residual supplier in the recent special report Robert Arnason and I wrote about long-term Chinese demand for Canadian agricultural products.
It arose in the context of what could happen to demand for Canadian exports if instead of growing ever larger, China’s and other importers’ demand steadily fell from mid-century onwards.
University of Illinois economist Todd Hubbs thinks there’s a good chance that North America could become a residual supplier to overseas markets, rather than remaining a preferred supplier, which it has been in recent years.
That has big implications on farmer fortunes, so it’s something farmers need to think about.
If MarketsFarm is right, Canadian farmers will be getting a taste of that situation for the next year.
