Market Information

In business there are many risks.  In agricultural businesses, risks abound. To say that agricultural production has many risks seems to be an understatement.  Agriculture is full of hazards well beyond the control of the grower and weather risk is ever present.  As we know, weather risks can be here at home in our own fields but also weather on the other side of the world can affect prices dramatically.  Risks in agriculture abound:  price, production, trade, war- such as in Russia/Ukraine, inputs, and weather can all be impactful to a growers bottom line.  This is the nature of the business and growers are generally accustomed to these risks, as the production of grains and oilseeds inherently come with production and market threats.  And while growers are accustomed to various risks, currently we are facing a potential geopolitical risk that we are not familiar with.  That risk is the potential tariff risks from the US.

The US has threatened broad and wide scale tariffs against many countries around the world, including Canada.  This tariff threat as we discussed is new to us here.  It has been a long time now that Canada and the US have had free trade.  Both nations have enjoyed success in the trading relationship and have seen economic growth as a result.  It is because of this mutually beneficial free trading relationship that our economies and businesses have become very intertwined.  Essentially, to businesses that trade freely, the border was one that distinguished national territory, but did not disturb the free flow of goods.  A Canadian business could sell to a US consumer as freely as they did at home, and the US producer could do the same.  Canada and the US would often champion this fact, that mutual trade was considered a key pillar of our relationship and most were glad to see trade volumes grow.  But this positive narrative is now seemingly under attack by the US administration. The US appears to be moving to the opinion that products not made at home result in lost jobs and less prosperity to the American people.   Their solution potentially is to bring tariffs.  Tariffs would prevent the free trading of goods to be hampered, bringing costs to the shipper of goods flowing across the border.  No longer would business and consumers, buyers and sellers, be able to decide independently what products they would buy, but government would have more control in pricing.  Tariffs prevent market forces from making trade decisions, yielding to government affected movement through financial controls.

From this, we recognize that the word tariff is one that just doesn’t go away easily.   The reason for this is of course that the US President Trump is very active in announcing tariffs and potential tariffs to many countries around the world.  President Trump is on record multiple times saying that, “Tariff, is the most beautiful word in the dictionary.”  And while this may be his favorite word, it leads many business leaders to their least favorite word, which is uncertainty.  To date, we have seen Canada and Mexico threatened with tariffs proposed to be effective at 25% on all products February 1^st, to be postponed till March of this year.  As of this writing it is uncertain as to whether these tariffs will indeed be introduced, and consequently business and consumers are left with trade uncertainty.  The results of the tariffs are massive for some industries and consumers alike.  Canada, a trading nation, needs exports of our vast materials that we produce to other nations for economic success and most especially the US, who is our biggest buyer.  But the US consumer and business rely on products from Canada too. Canada is a major shipper of goods that the US needs.  Consider the importance of our exports to the US, in that Canada ships about these approximate amount of US imports:  50% of oil, 40% of wood, 20% of minerals, 20% of animals and animal products and just under 20% of metals.

It is not only in direct Canada/US trade that we as a nation, and even more specifically as agricultural producers, may be affected by escalating trade wars even beyond our borders.  We must remember that the Canadian agricultural marketplace is essentially a regional market in the greater US marketplace.  This is because of our proximity to this large producer/consumer and our traditional free trading relationship.  From this geographic and trading reality our prices are currently discovered through the US Futures market, traded at the Chicago Mercantile Exchange.  If the US trade war expanded with China resulting in less US ag product exported, valuations in the US futures market would be under pressure, as the market would look for greater demand through lower prices.  China has been very effective in lessening its reliance on the US, primarily through the growing production from South America.  And while the US is still a heavy weight in agricultural production, its importance to the world market place has significantly diminished over the last few decades.  It’s reported that around 1980 over 60% of the world grain and ag trade came from the US.  Today the US is in a less dominant position with only about 12% of the world grain and ag trade.  World demands have grown, and the globe has participated in meeting this need.