VIEW FROM THE NORTH: Small pond, big ripples

There could be some benefits in some areas, but the 
downsides are many and could seriously disrupt markets

China’s tariffs on American pork and soybeans will have impacts here, although how exactly is an open question.

“It affects our producers because our hog prices are set off of the U.S. market,” said provincial pork specialist Ron Gietz after their imposition earlier this month.

The tariffs sent American prices plunging, with Canadian prices following suit.

“Even though Canadian exports have no extra tariffs, it still affects the Canadian producer because of the price linkage,” said Gietz.

However, this could spell good news for pork processors.

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“The packers will be paying less for the hogs and will be able to export some pork to China,” he said. “The overall pork market, the products themselves, should be lower as well as a result of this, across North America.”

Then again, Canada also sells about nine million live hogs a year to the U.S., a market that will be flooded with American pork needing a home. U.S. producers have also expanded their pork herd by three per cent.

“It’s not shaping up that good right now,” said Gietz. “Typically in these things, the markets will tend to overreact first and then find the true level.”

On the other hand, China’s tariffs on U.S. soybeans are expected to lower soybean meal prices, a big input for hog producers.

“There could be a benefit of the cost-of-production side. It all gets complicated. It’s all interconnected,” Gietz said.

On the oil side, any drop in soybean prices can also affect canola prices. Or it could help the sector if China imports more Canadian canola oil.

“It all remains to be seen what the bottom line is,” said provincial market analyst Neil Blue. “It’s all speculative at this point.”

Market analyst Errol Anderson said “the Trump situation” should be “slightly supportive to canola.”

But there are bigger considerations at this time of year when deliveries drop because of spring road bans and the (delayed) start of seeding season, said Anderson, president of ProMarket communications in Calgary.

“It’s pretty hard for a market to come down in a market like this,” he said. “So I’m a low-grade bull on canola.”

The top official with Soy Canada knows the impact on soybean farmers here won’t be good, but Ron Davidson isn’t exactly sure what impact Chinese tariffs on American soybeans will have.

“It just puts uncertainty into the market, and for Canada a lot of risk, because it’s next door and if they can’t send their soybeans abroad (to China) a place to send them is Canada, or certainly to our other export markets,” Davidson said.

Canada might sell more soybeans to China, but fewer elsewhere, he added. And the country only grew 7.7 million tonnes last year — a tiny fraction of 119 million tonnes grown in the U.S., with 60 per cent exported to China.

“The bottom line is yes, there is potential opportunity for us to do better in China both on a small amount of volume and perhaps some price advantage,” said Davidson. “But in every other market the risk is down, not up, because if the Americans start unloading (it could disrupt) every other market including the domestic one.”

Then there’s President Donald Trump’s promise to compensate American farmers if Chinese tariffs result in lower prices. That would put them at an unfair advantage over Canadian soybean growers, raising the spectre of Canada launching countervailing duties and anti-dumping measures against U.S. soybeans exported to Canada, Davidson said.

Canadian wheat farmers were side-swiped during the U.S.-European Union farm subsidy war in the late 1980s and 1990s. Canadian government farm aid couldn’t match U.S. and European subsidies.

The best outcome for Canadian soybean farmers is that the U.S. and China avoid a trade war, Davidson said.

“Let’s hope during this little pause period here the U.S. and China can work something out. That would be the best for everybody.”

About the author

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Reporter

Alexis Kienlen lives in Edmonton and has been writing for Alberta Farmer since 2008. Originally from Saskatoon, Alexis is also the author of two collections of poetry, a biography, and a novel called "Mad Cow."

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