I am into a rain delay in my soybean harvest, which means that I’m in that quintessential age-old part of crop farming, “hurry up and wait”. I’m hoping that the winds blow and the sun shines. We’ve all been here before.
I say that at a time when soybeans have gained $.43 a bushel from their September 18th lows. I suppose they can’t go down everyday and Friday’s USDA stocks report will certainly add to the equation. However, what the USDA has probably isn’t that interesting compared to the strange soybeans flow around the world. Whether you are in Argentina, Brazil, China, Europe or Canada, it would seem that everybody has an opinion on where American soybeans need to go.
I say that because what is happening now isn’t particularly natural. We have very low prices partly because of the huge record crop in the United States based on record yields and record acreage but also the trade war, which was sprung on the market in late spring. It has led to all kinds of agricultural economic gyrations in the soybean market that are unusual and trying to figure out what is up from down can be very difficult. I’ve had to explain this week to more than a few people there is not a large soybean augur over the Detroit River into Canada loading American soybeans to China tariff free. My goodness.
Some of the social media imagination about moving US soybeans into China without tariff has been vivid. Keep in mind that tariffs apply to soybeans at their point of origin. Any US soybeans imported into Canada go to the processor and this is monitored and kept track of by our government. What is happening in Ontario is that the soybean basis is much more attractive to export to places like China partly due to the tariffs applied on American soybeans. With the American soybean basis moving to record low levels, this is made it advantageous for Canadians to export our supplies but replace them with cheaper American soybeans. With total Canadian soybean production of approximately 7.7 million metric tons annually, we could supply China with about 20 days of their monthly consumption.
It means that there are no American beans coming through Canada, which ends up in China, and if they do there is a tariff applied. I also know that there is no barcode on American soybeans when they cross the border so American soybean looks just like a Canadian soybean. However, the trade wars created conditions were China is paying more for Brazilian, Argentinian and Canadian soybeans, anything but American soybeans. Seeing an opportunity to replace our usage with cheaper beans makes sense.
At the same time American beans are headed to both Brazil and Argentina to replace soybeans, which were shipped to China, which would represent a much bigger replacement of domestic beans than Canada. Meanwhile, back in the United States wet weather is delaying harvest. Increasingly, basis levels especially in the western plains are eroding. The American farmer has been told the trade wars are easy to win, but that is surely falling on deaf ears as combine roll.
There is more. Some American soybeans are reaching China but according to some reports, some ships have been taking an unusual long time to unload incurring very high demurrage fees. That is making it even harder on American shippers of soybeans. At the same time, you have to wonder if Sinograin, the state Chinese trading company, is collecting that entire 25% tariff. There is a myriad of opinion on the truth.
This will surely continue for a very long time. When the trade war started with steel and aluminum tariffs on China with the resultant 25% tariff applied on US soybeans in retaliation, I knew long-term damage had been done. If in some early morning tweet next week it all gets resolved, there will still be damage. Brazil and others are reaping the benefit of all this just like they did many decades ago under another American grain embargo. It would seem that every American commodity group gets that. I’ve always felt these trade moves were so unnecessary. It makes me still wonder what the American government was trying to achieve?
I don’t know. I had one American commodity analyst explain to me something about China wanting to have the biggest world economy by 2025 and intimated the US needed to make sure that didn’t happen. I’m thinking, what’s so bad about that, we’d sell them more soybeans? Needless to say, it made sense to him. As a Canadian, I understood him, because, I’m Canadian, we know what its like to live on this continent. However, I’m still wondering what’s the upside? US agriculture has been hurt and hurt badly by these moves. It is what it is, strange inefficient grain flow and all. A return to agricultural trade vibrancy needs to be embraced.