On May 31, 1984 a tornado swept through the south end of the City of Barrie, and having lived my entire life in the area, one of the things that I’ve observed is that when conversations hit a lull, people often fall back to reminiscing about where they were when the tornado hit. I have a feeling that the Ontario soybean industry is going to be the same way. That 30 years from now, we’re still going to be talking about the summer of 2018. “Remember when the U.S. administration started that trade war with China?”
The good news is that with every day that passes we are one day closer to the end. November soybean futures hit their 10-year low of $8.26 ¾ mid-session on July 13, and we’ve been slowly grinding higher ever since. The fundamental reality of the situation is that the world still has the same number of acres of soybeans and the same number of people creating the same volume of demand. All that the political rhetoric does is change the pathways on which the soybeans move in order to travel from source to market.
We are already seeing an increase in the volume of American soybeans flowing north into the Ontario crushers. The flow of crop is not new. There has always been a steady stream of Michigan and New York soybeans moving across the bridges into the domestic processing plants, but with international demand for American soybeans suppressed by trade issues, Canada becomes a better market for U.S. soybeans. Ultimately, this is a win for Canada, because our farmers have unrestricted access to the higher-priced world markets, and to backfill with cheaper U.S. beans simply aids in keeping healthy our domestic end users (which we need year in and year out).
President Donald Trump’s news conference on July 26 announcing that more American soybeans were going to be sold to Europe was a classic. There wasn’t any new trade initiative between the U.S. and EU. It was just the obvious statement that when you’re locked out of China’s 90- million tonne soybean market, American soybeans are going to flow to Europe because they don’t have any choice. It’s like having a press conference to announce that although you’ve been locked out of your four-bedroom house in the suburbs, you’ve found a vacancy at the Motel 6.
The reason why Canadian soybean prices (in particular basis levels) haven’t spiked sharply higher this summer is because the Chinese buyers are holding off on purchasing big volumes of soybeans in case the two countries can reach a resolution to the trade dispute prior to the U.S. mid-term elections in early November (after all, it will be hard for Republicans to do well in the Midwest if pork and other agricultural prices are still low this fall), and the European buyers are holding back on buying in case the Americans and Chinese don’t find a way to work it out. At some point, the buying has to start, and the market will need to find a price where farmers are willing to let the crop move. It’s really just a matter of how long this epic game of blink can last.
One of the things which farmers should be actively considering as we draw nearer to harvest is; “if I don’t want to sell soybeans in the current market situation, how do I restructure the marketing plan for other crops in order to accommodate storage limitations and cash flow needs?” Typically, Ontario farmers have moved a large portion of their soybean crop at harvest, but if we get to October without the trade situation sorting itself out, is there enough bin capacity to store more soybeans? As wheat and corn prices surge in late July, forward-thinking farmers added to their fall-time corn and wheat sales in preparation for holding more soybeans back. Soybean prices have very little room left to drop lower, while corn and wheat certainly could. We need to be ready to grab the opportunities which appear in other commodity markets as they appear, and be prepared to play the soybean market with immense patience.
Since the first announcements of U.S./ China trade sanctions in March, 2018 has been an extremely interesting year to watch the markets. However, observing the current tariff-rattled markets tumble is much like driving down the freeway and seeing a car accident unfolding in front of you. Not only do we need to watch what’s happening, but we also need to avoid becoming part of the crash. Our number one priority is to search out the opportunities to steer our businesses clear of the carnage. Focusing on marketing corn and wheat is the best opportunity to accomplish that goal.
Steve Kell operates a crop farm in Simcoe County and is a grain merchant for Parrish and Heimbecker Ltd. in Toronto.