It has been a long and winding road over the last year for grain prices. As we look into September there is much lament in farm country about how low prices have gone. There’s even some talk about being at the bottom now versus the more traditional October.  Needless to say, nobody really knows except we got here with our eyes wide open.  The question is when are the forces going to come together to put us back into better grain prices?

Aside from a Black Swan that we can’t see and production problems this coming planting season in Brazil it might be a long time coming.  Our agricultural productivity vicious cycle just continues as we are very good at producing very good crops.  Demand is strong especially at these price levels but of course there are always issues along the way. One such issue that I worry about as we look ahead are tariffs. We don’t want to go back to those days when grain faced big tariff walls.

The most familiar idea of tariffs has to do with soybeans going to China a few years ago.  At that time China was reacting to American tariffs on Chinese goods and they responded by hitting the lowest hanging fruit, American agricultural commodities being the scapegoat. At the time prices slumped on the news as China was always seen as a customer with an insatiable appetite for soybeans.  After the tariffs were removed China still had a voracious aptitude for soybeans but they must prefer them with a Brazilian flavour. Who could blame them?

Our Brazilian friends as everybody knows has benefited from this Chinese consumption with ever increasing production.  In many ways, their relationship with China comes with no strings attached for the Chinese. There is a lot less political baggage to go around and at the end of the day a soybean is a soybean is a soybean.  That will never change and of course the great equalizer is “cheap.”  “Cheap” moves a lot of soybeans.

As it is, the agricultural world keeps changing and the movement of our agricultural commodities will always continue to follow the cheap path, but it won’t necessarily be from North America. The Brazilians and the Chinese have proved that.  What we have learned is that trade wars are not easy to win despite the popular political rhetoric of a few years ago.

Case in point is the recent 100% tariffs that were applied to Chinese electric vehicles coming into North America.   Last week the Canadian government announced a new 100% tariff on Chinese EVs and a 25% tariff on Chinese steel and aluminum coming into Canada. This is very similar to what our American friends did last May.  At first glance I did not find this very surprising as any North American politician is going to try to protect the North American automotive industry.  In fact, most of this news came across as very reasonable to any North American consumer.

I felt a little bit differently.  I am very aware of the Chinese electric cars such as BYD, which are a fraction of the price of North American electric vehicles. Some people might argue they’re also technologically superior with much longer battery life.  If they were allowed into North America, I could see them selling very well giving big competition to the highly subsidized North American electric vehicle market.  However, with tariffs that is almost a non-starter. Needless to say, it was obvious to me we will face trade retaliation from China.

That will certainly come from the easiest low hanging fruit. For instance, should we expect Chinese tariffs on Canadian canola and soybeans in the near future as a response?  Our soybean business would not be much affected as our total production wouldn’t keep China going for two weeks based on their consumption rates.  However, any move by China against Canadian canola will certainly hurt western Canadian farmers. At the end of the day, any back and forth “tit for tat” tariff action between the United States, Canada and China will hurt those down on the farm.

It is quite the conundrum, and it is something that realistically is never going to go away.  It is not a winning formula for North American agriculture when one of your biggest buyers is constantly being targeted thru other trade actions.  The move on Chinese electric vehicles is a classic.

What’s different now in 2024 versus other times is that the world is changed. Spend some time in Asia like I do, and you can feel that change on the ground.  Their perspective is so much different than the perspective here in North America. A receptive Brazilian agricultural sector just grows stronger because of it. Understanding your customers is key.  In Canada I’d like to believe we get it. However, the view ahead looks more complicated.  Finding a middle way always seems so elusive.