By Tom Collins
A trade war between China and the United States could have a negative impact on grain prices here in Ontario, says the vice-chair of the Grain Farmers of Ontario.
On April 4, China announced a 25 per cent increase on corn and soybeans, but added the tariffs would only come into effect if the U.S. implements its own levies against China.
China purchases 61 percent of total U.S. soybean exports, and more than 30 percent of overall U.S. soybean production. American crop prices quickly dropped, with soybean prices dropping US $0.40 in the first few hours after the announcement.
Corn prices weren’t as hard hit since not as much of it is shipped to China. Mexico and Japan buy about 50 per cent of U.S. corn exports, while China is not even a top 10 buyer, but the price dropped seven cents in the hours after the announcement.
Mark Huston, vice-chair of the Grain Farmers of Ontario and chair of Soy Canada, said China could be playing a big game with the timing, as China is currently buying mostly South American soybeans, and wouldn’t normally be purchasing North American soybeans until later this year.
“Now the question is whether or not they can get a solution drafted before harvest starts and the traditional American beans start migrating their way in,” explained Huston. “Otherwise, it could be a long run and that doesn’t bode well for commodity prices moving into the future.”
Huston said Western Canada growers could ship more soybeans to China, but it would be tough for Ontario farmers to do so because of the extra transportation costs.
In the meantime, Ontario growers should be keeping an eye on soybean prices in case the trade war turns into a long-term battle.
“(Farmers) have got to talk to the people that are working with them and looking at opportunities within the grain markets,” he said. “It was a pretty big hit overnight. You don’t know how long that can last. It could be up again overnight. You never really know, so you just try and manage the risk as well as you can and try to stay in business as long as you can.”
The day before the corn and soybean tariff announcement, China did add a 25 per cent tariff on U.S. pork. America sent about $1.1 billion of pork products to China in 2017.
There is some uncertainty about how much of that $1.1 billion would actually be affected by the announcement, as Smithfield Foods, the biggest U.S. pork producer, is Chinese owned and it is unclear if that company would be exempt.
Canada sent about $644 million of pork to China and Hong Kong from January to October of last year, according to the Canadian Pork Council.
Martin Lavoie, president and CEO of Canada Pork International, said the U.S. ships pork parts such as feet and heads, and since Canada pork producers are already shipping everything they can to China, there’s not much of an opportunity to take advantage of the Chinese market. However, Ontario pork producers will now have to contend with the U.S. trying to send that pork to other markets, such as Taiwan and Hong Kong.
Lavoie said Ontario farmers don’t need to worry about the Canadian market being flooded as there is a limited market here for pork heads and feet.
The Canadian Pork Council said that Ontario has the second-highest number of pigs in Canada (about 25 per cent of all pigs are in Ontario) and the highest number of pig farms.
The Chinese also announced a potential tariff increase on beef on April 4, but that is not expected to have much impact, as China bought 2,200 tonnes of U.S. beef in 2017, worth US $14.7 million. Last year was the first year China imported U.S. beef in 15 years.