U.S. aid package poised to hurt Canadian soybean farmers
A US$12 billion bailout intended to ease tariff pain for American farmers is expected to worsen market conditions for Canadian soybean producers already side-swiped by the escalating trade war between the United States and China.
The emergency package for U.S. farmers unveiled last month includes government purchases of surplus products as well as direct compensation for farmers according to the size of their harvests. It is expected to offer a significant boost to soybean producers — located largely in the heartland states that voted U.S. President Donald Trump into office — who were slapped with a 25-per-cent import tariff by China in response U.S. levies on US$34 billion worth of Chinese goods.
It is also likely to depress soybean prices that were already pushed to record lows due the tariff dispute. That will mean more pain for Canadian producers, whose prices are closely tied to a U.S. benchmark.
“We’ve done nothing to contribute to this and yet we’re getting hit,” said Ron Davidson, executive director of Soy Canada. “First we’re hammered by the 25-per-cent Chinese tariff and now if the U.S. farmers get compensated and we don’t, well that doesn’t seem fair.”
Trump’s tariff tit-for-tat with China sent soybean prices plunging 20 per cent to US$8.50 a bushel in July, though they have since inched up to US$8.80 a bushel, said Ken Ball, a senior commodities future adviser at PI Financial Corporation in Winnipeg. The farm aid will further distort the market, keeping prices low by encouraging U.S. soybean producers to continue planting at a time when the industry is already over supplied. Figures to be released by the U.S. Department of Agriculture (USDA) on Monday were expected to show a record American crop of 800 billion bushels of soybeans, topping a previous record of 574 bushels, Ball estimates.
“Normally what we’d like to see happen is fewer beans planted so we can regain a normal market balance,” he said. “But if farmers are subsidized they could be encouraged to plant more. That’ll keep the price low and that doesn’t help Canadian farmers.”
The Grain Farmers of Ontario, which represents the province’s 28,000 barley, corn, oat, soybean and wheat farmers, has asked the federal government to establish “contingency plans” to address the impact of global trade tensions on Ontario farmers. Though the federal government has pledged $2 billion in aid to industries affected by U.S. import tariffs on Canadian steel and aluminum, it has yet to offer support to industries indirectly impacted by Trump’s “America First” trade policies. The Canadian Agriculture Partnership has a $3 billion fund, but it is not designed to support farmers in the event of major price shocks, or if there is a prolonged impact as a result of trade issues.
With the U.S. shut off from its largest export market, Canadian producers could soon find themselves competing for market share with displaced American beans, said Markus Haerle, chair of the association. “The danger we see ... is market pressure when harvest comes around in late September. That’s when ... we’ll see the full effect of these tariffs,” he said.