Soybean farmers still in the weeds despite futures rally

With many of Canada's 2020 crops already contracted, they're likely to miss the uptick

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Soybean prices may be on the rise, but industry observers warn that Canadian farmers will need more than that to return soybeans to the profitable staple crop they once were, after years of falling prices and rising diplomatic tensions that made the Chinese market effectively off limits.

Soybean futures trading on the Chicago Board of Trade hit a two-year high of US$10.43 a bushel at the end of last week, amid renewed buying interest from China, according to the Wall Street Journal. Soybean prices in Canada are based on those futures prices, but that doesn’t necessarily mean the recent rally will automatically translate into higher income for Canadian farmers.

“Soybean farming is still in quite a challenging position,” said Marc Desormeaux, a senior economist who leads the Bank of Nova Scotia’s commodity market coverage.

Challenges have been stacking up for Canada’s soybean sector since 2018, when the U.S. trade war with China led to tariffs on U.S. soybeans and drove down prices on the Chicago Board of Trade. In early 2019, China’s imports of Canadian soybeans slowed to a trickle in what was seen as retaliation for the arrest of Huawei Technologies Co. Ltd. executive Meng Wanzhou in Vancouver.


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The industry effectively lost its biggest customer overnight, forcing it to find other markets at lower prices. China bought 3.6 million tonnes of Canadian soybeans in 2018, and just 56,000 tonnes in 2019, though that has risen to 139,000 tonnes in the first seven months of 2020.

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Desormeaux noted that African swine fever has decimated the Chinese hog herd, driving down demand for soybeans to be used as feed. COVID-19 has further tamped demand internationally, with struggling restaurants needing less vegetable oil — a key use for soybeans.

“All of these are risks. All of these are uncertainties,” Desormeaux said. “But soybeans are a key Canadian crop for the agricultural sector. They’re a key export. And they’re facing challenging positions right now, the recent price gains notwithstanding. So that’s something that will likely have an impact on the Canadian economy.”

Canadian soybean production has grown substantially in the past three decades, reaching 7.4 million tonnes in 2018 from just 690,000 tonnes in 1980, according to Statistics Canada.

After tensions flared with China in late 2018, Canadian production fell by more than one million tonnes in 2019, and stayed roughly stagnant this year, with production projected at 6.1 million tonnes.


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At the same time, soybean futures on the Chicago Board of Trade hovered around US$8 to $9 per bushel, which meant Canadian farmers were struggling to break even.

It would be nice if that price would keep going up, to get us back to a profitable crop

Ron Davidson, Soy Canada

“It becomes a pretty tough go,” said Craig Martin, co-owner of Cribit Seeds, a producer of soybean seeds located near Waterloo, Ont. “Long term, (soybean futures) have been trending just around that cost-of-production mark.”

The rally in soybean futures could mean a return to profitability for farmers, but many Canadian operations have already contracted out their 2020 crop and are liable to miss out on the recent trend, according to industry association Soy Canada.

“It’s not like the producers are suddenly going to get this increase in price for a big percentage of the crop,” Soy Canada executive director Ron Davidson said.

The rally in soybean futures — which have slightly dipped this week to around US$10.03 on Thursday — is due in part to an increase in Chinese purchases of U.S. crops. But it’s not clear whether Chinese purchases of Canadian soybeans are also on the rise, since Statistics Canada export data is current only as of July.

Davidson argued that U.S. farmers have been better protected against trade turbulence and price fluctuations due to federal government subsidies. Soy Canada said its calls for Ottawa to respond with subsidies of its own have gone unheeded.

“We have been suffering since the middle of 2018, big time,” Davidson said. “It would be nice if that price would keep going up, to get us back to a profitable crop that’s making some kind of a positive return to farmers.”

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