In Chuck Penner’s mind, there’s no doubt that Trump’s presidency adds complexity to markets.
“The difficulty is the unpredictability of it — it’s gonna be big,” said the market analyst and founder of LeftField Commodity Research. “We just don’t know how things are going to shake out.
“The media has no shortage of stories to talk about with respect to this. But until an executive order is approved and all that kind of stuff, until that actually happens, we don’t know how things are going to shake out.”
Looming large is the possibility of a lower Canadian dollar, which would help exports but raise the cost of imports.
The loonie and crude oil were closely coupled in 2014-15, but are starting to pull apart, likely affected by trade issues and concerns south of the border, Penner said during FarmTech.
“Some of the bigger things will be around COOL (country-of-origin labelling) — I’m afraid that might get slammed on us one more time,” he said. “The important thing is that even if this president’s term only lasts four years, I think the ripple effects of that will last quite a bit longer and take a while to unwind.”
Another big issue is the border adjustment tax, which is being pushed by the Republican-controlled Congress. The tax would be levied on goods made from imported inputs, but not on ones made from domestic inputs and then exported.
“That has a big impact in terms of giving American manufacturers an advantage,” said Penner, adding, for example, American companies might want to source inputs such as oats in their own backyard.
“We do have a lot of speculation about this — there could be exemptions for ag inputs or things like crude oil,” he said, adding some countries could be exempted from the tax.
“It is something to keep track of,” he said.
The Americans will likely promote their own domestic energy, which could reduce energy imports and lower the Canadian dollar.
“Another thing that there has been noise about is biofuels,” said Penner. “The guy in charge of EPA (Environmental Protection Agency), which is in charge of setting the biofuels mandate, has been an opponent of biofuels or government subsidies or government involvement in biofuels.
“Whether he gets dialled back or not on those aspirations, I don’t know, but it is a potential.”
Curtailing biofuel production would have a major impact on ag commodities, he said.
“If you put a billion bushels of corn back on the balance sheet in the U.S., that could get really ugly.”
Fortunately, the economics around ethanol have changed, and a change in mandatory use of biofuel blending would not collapse the entire industry, he added.
“But it could soften it, and we could see some negative impacts that way,” said Penner.
Another issue to watch is anti-immigration policy, which could result in higher labour costs and higher food prices in the U.S. That could be beneficial to Canada. As well, an escalation of the conflicts between Washington and China and Mexico could benefit us.
“Maybe some of these countries will be more interested in buying Canadian than American,” said Penner.