Under the Agridome

No Apocalyptic Pronouncements: July 6th Tariff Deadline Is What It Is

Thursday, June 28th, 2018

It has been a busy spring, but the longest day of the year is on the docket. When I was younger I used to love the wintertime partly because I had more time to play winter sports. However, as I’ve grown older, I love the warmth of summer. I also like this time of year because I start spraying soybeans and the production world seems to slow down to a pace more commiserate with my age.

So for the next few weeks I’ll be spraying soybeans in my annual attempt to kill the weeds. My soybeans are food grade and they turn up eventually on some lucky consumers plate in East Asia. I remember very clearly 25 years ago visiting with a Singaporean soybean buyer in Singapore. He told me that every day somebody in East Asia sits down to eat some soybean. He said North Americans don’t like it because it tastes too “beany”. The rest as they say is history; Asian demand for soybeans has exploded.

Of course, looking at soybeans now versus even a few weeks ago seems like such a horror movie. Losing a $1.55 a bushel on futures since May 24th has been precipitous. Losing even more in the cash market has been rough as well. Of course, we all know why. It’s about that twitter and trade war that was always a possibility, but it’s got so much more serious lately. Even Canadians have been labeled evil by the American administration. Hmmm.

The United States and China aren’t backing down from their tariff intentions with the July 6th deadline looming. Soybean buyers are staying away and prices seem to be far away from a bottom. You can bet when July 6th dawns, the rhetoric will get worse. There is no telling how low soybeans can go. Any emotional reaction within the market that day is a possibility.

Over a period of 32 years writing this column I’ve been careful about making apocalyptic pronouncements. However, I know that in many cases I have crossed that line. In fact, maybe I have even cross that line with regard to the soybean market over the last few months. The simple truth is geopolitics always matters to the grain markets, but it has come home in spades to the soybean market over the last few weeks. The flow of money does not like unusual uncertainty and that’s certainly what we have now in the soybean complex. Meanwhile, crops are doing well in the United States.

Lost in the June meltdown within the grain market has been the usual preoccupation with the end of June USDA acreage estimates of planted crops in the United States. In a regular/normal year we are fixated on the number of acres that US farmers are going to plant and whether that will be any different than the March projections from USDA. This year the twitter tirades and resultant possible trade war makes that seem paltry in comparison. Needless to say, I’m here to tell you, grain fundamentals at the end of the day will still matter.

On June 29th will there be more corn and soybean acres than the 88 and 89 million acres respectively the USDA had predicted earlier? Will the stocks report on that day reflect a reduction in US grain demand? Will the trading algorithms decide that going into the July 4 weekend, “the crop is made”. Of course, if that is the case the very long slog to harvest price lows begin. Needless to say, Mother Nature will have much to say about this going forward.

In Ontario, Statistics Canada has reported that they expect 2.2 million acres of corn and 3 million acres of soybeans to be planted. We should get some updated number soon. However, those numbers seem to make sense to me. When you combine that with our consistent high productivity levels, there should be lots of corn going into next year. It almost seems like the old “import basis”, which has been historical in this province is no more. We have simply become too productive for our own good. Of course, at the end of the day, that’s a very good thing. It’s too bad we can’t have our cake and eat it too.

A redeeming factor in our domestic grain-pricing situation has been the value of the Canadian dollar currently hovering just above $.75 US. If the Canadian dollar was at $.85 US, we’d be in a heap more pain here in Ontario or Qu├ębec. The foreign exchange gain in basis continues to buffer our price realities.

So we move on. Get that combine ready for wheat, or be like me, spray some soybeans. June 29th USDA should offer some distraction. However, the July 6th tariff deadline means so much more.