In southwestern Ontario we’re getting a hint of spring as warm weather has swept across farm country. I even see some wheat producers in Ontario talking on social media that they should be putting some nitrogen on wheat. Who knows maybe in a couple weeks we’ll have two feet of snow. There will be time to get the nitrogen on wheat, just be a little patient. Hopefully, that will pay off.
When it comes to our grain prices, I’m sure patience is certainly in short supply. Last week I talked about keeping abreast of the big picture of things and just how we got to where we are now. Today, July corn close $0.05 and July soybeans were down 13 and a quarter cents, both making new contract lows. I could hear a collective lament across Ontario farm country with Canadian dollars the only thing that is holding the price optics above water.
Some of you might still be telling me that you’re not above water, in fact you are below water. To give you perspective old crop corn today in southwestern Ontario is worth $4.79 a bushel and old crop soybeans are worth $14.56 a bushel. I’m old enough to remember when there would be a stampede to sell at those prices even five years ago, but we know that the input prices of the last two or three years have been much higher. In fact, old crop corn has lost a dollar since harvest time alone which represents real money across eastern Canada.
I like to say that we got here with our eyes wide open. Stay with me for a minute on this as I want to talk about a couple of geopolitical matters that have helped cause this big supply. Namely, I want to talk about tariffs and sanctions. In this big world they have become a tactic to bring about political and geopolitical change. Results have been messy and they surely will continue to be that way as we march into the future.
Think about it from 30,000 feet in the air over a number of years. One of the reasons that we have a big supply of grain in the world at the moment is the big crops that are coming off in Brazil and South America in general. When have you ever heard about the South Americans being targeted by the world’s great powers? It essentially never happens and in fact Brazil has become the bread basket for the world with their vast production potential.
At the same time during the Trump administration in the United States both China and Canada as well as Mexico faced tariffs on different specific commodities. You think of Canada, and you think of the aluminum tariffs, and you think of China, and you think about soybeans. You might remember the saying, “trade wars are easy to win”. However, at the end of the day several years down the road trade wars are not easy to win and in fact affect behavior going into the future. Foreign buyers look at the supply of Brazilian agricultural commodities with no strings attached. They have not only become the biggest exporter of agricultural commodities because of their abundance and price but also the provider choice. Brazil being part of the “BRICS” countries is reaping the benefits.
At the same time that this was happening on the other side of the world we had a major fracture in the world wheat trade when Russia invaded Ukraine and you know the rest of the story. Wheat prices went crazy for a very short time. Your loyal scribe sold wheat for $15 a bushel. Russia was sanctioned heavily by Western countries in a whole host of ways that had to do with oil, natural gas and the SWIFT payments system ban on several Russian banks.
Meanwhile the war rages on between Russia and Ukraine. At the same time almost all Russia’s oil is going to China and India. In fact, India is buying about 13 times more oil from Russia than it did before the war. Of course, as farmers we know about oil, but we also know about wheat. Russian wheat on the world market has reduced prices down to basement levels. The Russian economy still has problems, big problems but they have managed to survive to fight another day
All of this upheaval might be for good reasons from a western perspective, but what happens after it’s over? Will trade simply go back to its old patterns or will protagonists on both sides have a long memory? Will scorned buyers go back to the people who sanctioned or tariffed them?
The answer is it’s never the same again. The world is full of bad actors some of whom buy large amounts of agricultural commodities. They do what they have to do to source those agricultural commodities from places with less strings attached. That’s a big reason Brazil and South America have become such preferred suppliers. For us in the more traditional areas like North America and Western Europe it’s been a bit of a wakeup call.
When I was on the other side of the earth a few weeks ago, there were Russian and Chinese voices everywhere. They were doing business in a region that was growing rapidly. They were also there because they were not sanctioned. They were also there because they weren’t tariffed. In their view, why should they choose to be poorer because of a western political narrative.
The answer to that of course is a long story. However, it’s a reality that farmers face as they look into our marketplace. Prices are at current levels because of big supply, but they also got there because of political interference. It might have been indirect, but it was real and there’s really no good way to put the cat back in the bag now.