The Rural Voice, 2019-04, Page 50 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
U.S. / China trade deal and the on-
going negotiation progress.
The problem everyone seems to
be having is the doubt as to whether
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
U.S. 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 multi-year 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 U.S. 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
U.S. 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
(CAD) of Canola to China per year.
Grain and oilseeds are among the
category which represents about 17
per cent 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 U.S.
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 U.S. sells
China over $12 billion (USD) of
soybeans per year. Soybeans are the
U.S.’s second largest export to
China, following behind aircraft. As
the U.S. stockpile of beans grows –
export markets and trade deals are
key to the price outlook.
In Ontario there continues to be a
46 The Rural Voice
Progress of
U.S./China trade
talks affects
markets
Scott Krakar is
a Grain
Merchandiser
with LAC Inc.,
Hyde Park,
519-473-9333
Markets
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