Rural Voice March 5, 2019

As we come out of the doldrums of winter the most newsworthy item affecting the grain market prices continues to be the potential for a US / China trade deal and the on-going negotiation progress.  The problem everyone seems to be having is the doubt as to if progress is being made.  With any given news item, market participants can be optimistic and pessimistic, as mixed signals and statements make headlines difficult to interpret or anticipate.  We have seen headlines ranging from: “ a China deal will add additional billions of dollars of agricultural product purchases” to the US Chief trade negotiator saying, “President Trump might be overstating the potential for a deal.”  Such varied statements make the outlook uncertain with this overhanging political risk.  Positive deals coupled with production problems could send prices sharply higher, while a lack of trade and trend line production could sink prices to multiyear lows.  Not only is weather uncertainty a major risk to producers, political risk has been growing and will likely continue to add risk to the farmer. 

The US isn’t the only country that has trade issues with China, as Canada too has its own growing trade problems with Beijing.  Recently China cancelled a major Canadian company’s registration to ship Canola to the country.  It is not reported or clear as to why this halt in registration was put in place.  Speculation of course, is that it is in retribution to the Canadian arrest of a Chinese telecom executive from Huawei Technologies, who faces US criminal charges.  The Chinese government has openly rebuked Canada for this arrest and the Canadian government has responded that it is not the government of Canada’s policy to obstruct matters of law with political interference.  China has cried foul in this regard, as the SNC Lavalin scandal has simultaneously surfaced, in which political interference has been accused in the Canadian government, rising up to the Prime Minister and his office.  China points to this as a double standard and they have openly threatened Canada with retribution.  This could potentially rise to a major blow to both Canadian GDP and especially the farm economy, predominately in western Canada.  Canada exports 2.5 Billion dollars (CAD) of Canola to China per year.  Grain and oilseeds are among the category which represents about 17% of all Canadian exports to China.  This trade issue hits close to home also, as Ontario soybeans shipped heavily into China last harvest.  China buying large volumes of Ontario grown beans last year was a great benefit financially to Ontario growers.  Hopefully this issue does not escalate further. 

 

In regards to these issues discussed, a China deal is an important component to future grain price directions.  This is of course due to the large inventories of US grain and the need for markets to clear the surplus.   Oilseeds face the largest pressure as China is the key buyer of the exportable world surplus.  Soybeans are China’s second biggest import.  Oil is their largest import and aircraft is their third largest purchase in terms of dollar value.  China, as mentioned earlier, bought large volumes of Ontario beans last harvest.  The US sells China over $12 billion dollars (USD) of soybeans per year.  Soybeans are the US’s second largest export to China, following behind aircraft.  As the US stockpile of beans grows – export markets and trade deals are key to the price outlook.

 

In Ontario there continues to be a lot of worry as to the condition of the Ontario wheat crop in the field.  Many growers are questioning the survivability of their wheat stands due to poor conditions this winter.  Not only has the wheat been hit by freeze thaw cycles, but standing water and an abundance of ice in the field could cause survivability issues.  This is especially concerning as the wheat went in the ground late in the year after the delayed soy harvest, into wet and cold soil conditions.  Every year there is always concern about the survivability of the wheat crop.  Not only in the past few years did we find that the wheat survived the winter well, but we achieved record yields in some areas.  While this is always the conversation, this year, there seems to be more grower concern.  From this extraordinary apprehension one has to wonder about the final harvested acres of Ontario wheat this season.

Wheat prices continue to show weakness, making new contract lows in February.  There has been so much anticipation of US export sales in the marketplace and this demand just hasn’t materialized the way many analysts expected.  Wheat prices continue to sink despite US wheat acreage once again making century low plantings.  The reason for this is the Black Sea growing region, including Russia, and their increasing dominance in world wheat production.  At the end of February Russia had exported just shy of 29 million tonnes of wheat, up over 6% year over year.

Looking further down the road, the demand for Ontario grown hard red wheats continues to grow.   Ontario wheat millers are keen to increase acreage of locally grown hard red wheats in the province.  Both spring and winter classes are in demand.  With the negative outlook for soybeans, increasing hard wheat demand is potentially a good alternative to some soybean acres.





 

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