The News & What it Means – Uncertain Markets Require Cautious Planning and Marketing

By John DePutter & Dave Milne – March 29, 2019
The news:

“Canadian crop and livestock producers are facing ‘exceptional uncertainty’ amid trade issues, geopolitical tensions and African Swine Fever, according to a new report from Guelph, ON-based Agri-Food Economic Systems.”

– Syngenta website story, March 25, 2019.

What it means:

We don’t presume to know how farmers will ultimately react to this uncertainty, but the safest road for producers may be the most familiar.

That is, farmers are not likely to push all their chips forward trying to guess or hope for one particular outcome. Instead, they may be more apt to simply stay the course – planting the crops they grow best in the rotation that best suits their operation, and sticking to their regular livestock marketing plan.

It may not be the sexiest option or the one with the biggest payoff, but in today’s world it may still be the smartest.

We certainly agree with the premise of the report from Agri-Food Economic systems, that due to the various global trade and animal disease issues, there is little to no clarity in crop or livestock markets.

Plenty of ‘what ifs?’

For example, the African Swine Fever (ASF) outbreak in China has shot lean hog futures sharply higher over the past couple of weeks, providing a nice reward for North American producers. But what if ASF is suddenly discovered in either the US or Canada? Despite everyone’s best efforts, it’s an entirely plausible scenario that could have major market implications.

And what of the trade disputes? Could the US and China finally work out their trade differences, allowing American soybeans to flow once again to the Asian giant? That would obviously lend a helping hand to soybean prices, but what if China continues to give Canadian canola the cold shoulder? With spring planting right around the corner, Prairie farmers are left with a difficult decision: more canola acres or less?

The same dilemma faces those who grow peas and flax. Planting more acres of either crop could pay off big time if China suddenly starts to buy again. But if it doesn’t, both markets could be glutted.

Massive swings, changes unlikely

In the end, the most likely outcome of all the current uncertainty is that we don’t see any massive swings out of one crop and into another. Sure, there will be adjustments up and down, but probably no more than you would expect in any other year.

The same likely goes for livestock producers: they may see dollar signs in China now but caution remains in order in terms of sharply ramping up production.

Checking the big picture. . . these are tough times in the crop sector

The DePutter team believes the Canadian cropping sector is into a stretch of declining net profits on many farms, and shrinking net worth for many operations as well. And it’s also our view these challenging times could last quite a while.

Marketing ideas

Markets are always uncertain and careful crop marketing is always important – even more so in today’s environment. It’s not easy to balance downside risk management with maximizing what the markets have to offer.

Times like this do require some fine-tuning to some farmers’ approach to grain marketing and an ongoing recognition of what’s happening in the broader ag economic picture.

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