It is a big world out there. I say that because I can remember the many times that I’ve traveled in an airplane over the world’s oceans. Believe it or not, on the other side of the world people get up just like we do and go to work hoping to get through another day. I often think of that when I drive to my farm in the morning.
Of course, the world is not southwestern Ontario or the greater US Corn Belt For instance, the other day in Argentina the government announced that they were going to restrict currency purchases following a sharp drop in the value of the Argentinian peso. The Argentine government said they wanted to defer debt payments to the International Monetary Fund because of extraordinary economic conditions. They are restricting Argentinians from converting their currency into US dollars (on a monthly basis). It’s something that we’ve seen from Argentina before.
What does it really mean? From a farmer perspective, we’ve known that Argentina is a major agricultural exporter, especially in soybean products. It would stand to reason that any type of economic hiccup in Argentina might have an effect on us here in southwestern Ontario. Simply put, the actions of the Argentinian government means that the country needs hard currency. In other words they need a way to get that hurt currency through foreign exchange. In order to build roads, schools, health facilities and port infrastructure and hard currency is needed to get this done. Any commodity, which is demanded on the world stage such as soybeans, has real value in hard currency. That’s one reason that Argentina taxes soybean exports. The government does it because they can and this bring in hard currency to their treasury.
Its something that Canadian and American farmers are not very used to. For instance, the Canadian dollar is a thinly traded currency, but it is a hard currency readily exchanged throughout the world. The United States dollar is the king of hard currency and it is readily exchanged anywhere around the world. In fact, I have only been one place where it wasn’t exchanged and that was in the deepest darkest corner of Bangladesh. However, in many other developing countries around the world foreign exchange is illusive. Would you rather get paid in Bangladeshi Taka for your soybeans or US dollars? Bingo, you get it.
These foreign exchange gyrations take place within our global economy, which is currently being buttressed by recession fears sparked by the trade war between United States and China. This is putting other countries economic growth at risk. Case in point is Argentina, whose economy contracted by 5.8% in the first quarter of 2019 after shrinking 2.5% last year. Poverty rates have risen and you can just imagine the pressure on that government
If a global recession was actually in our future you could include many other countries in this scenario. For instance, take all the countries in Central America and add the countries in Africa as well as some of the poorer countries in Southeast Asia. With the global economy contracting there is a lot less purchasing power and a lot more poverty. As farmers in southwestern Ontario and the greater US Corn Belt, that isn’t good for us. We simply need the people of the world to be better off to be in a better position to buy the products we sell.
It is just good business unfortunately it is being side swiped in the current dustup between United States and China. As we all learned last year geopolitics really matters to our agricultural well-being. Add the Huawei problems here in Canada into the mix and you can see how things can go south very quickly.
Of course all of this takes place in a very fluid global agricultural economic environment. At the present time we have those problems in Argentina, plus Brazil is starting to increase their ethanol production. They are doing this because Brazilian millers have turned away from sugar as raw sugar prices have declined 50% from 2016. The United States exports ethanol to Brazil, partly because sugar had an earlier boom in Brazil.
Less demand for ethanol from Brazil will back up into American cornfields, which ultimately will back up into Ontario. However, less soybeans from Argentina will help us. Needless to say, Brazilian soybeans will replace them, which have been spurred on by supplying the Chinese re that trade war again.
It would be simpler to have trade peace. However that has proven a very illusive goal in 2019. In a perfect world, you know the rest of the story. The world is a complex place, where agricultural commodities are in abundance. However, not everybody has the foreign exchange to trade them efficiently, while other countries want a bigger piece of the pie. Our challenge is to find a profitable way through it.