Canada Markets

The headline "What doesn't kill you makes you stronger" seemed more appropriate for this piece, but I felt emotions are running too high right now for that. It still applies, though, for a variety of ag markets currently being derailed by various global tariff wars.

The soybean market on pins-and-needles waiting for China to finally buy U.S. soybeans has led to heightened anxiety and volatility based on seemingly unrealistic expectations. The lack of sales to China has also derailed traditional cash business and hurt basis levels, especially in the northwest Corn Belt where most soybeans head from the combine to the Pacific Northwest ports.

It seems the only thing that can be done to resolve the issue is for China to drop its 34% retaliatory tariffs on imports of U.S. soybeans so the U.S. supply can be price competitive. The only way that will happen, according to China's Commerce Ministry, is if the U.S. takes "steps to remove unreasonable tariffs." That's something that seems highly unlikely at this point.

There is never a good time for a bad time, but this could be as close as it comes. A relatively small soybean crop expected in the U.S. could allow time for this to be an inspiration for change, and for that change to take place.

Clearly, having such a heavy reliance on one unpredictable customer comes with risks that are identifying themselves now. The current record pace of corn export sales (with zero bushels to China) highlighted in the accompanying chart should be used for inspiration to look toward countries that may have trouble securing supplies from South America if China buys too much of the latter countries' exportable crop.

Looking at the big picture, someone will have to buy U.S. soybeans unless China just backs away from imports in a significant manner, which it is showing no signs of doing currently. World importing countries are expected to take in a total of 186.21 million metric tons (mmt) while exports from South America are only expected to be 128.6 mmt as their growing domestic processing uses a record 115.82 mmt. The difference between world imports and South American exports will have to come from somewhere -- and the U.S. is the only other option of significance. It also helps that U.S. soybeans are on sale, thanks to anxiety over China.

Such a diversified customer base may not even be a concern in the short term if yields do end up being lower than previously estimated given disappointing early harvest reports, thanks to drought and disease pressure. The decline in production may offset any decline in exports seen by the lack of Chinese business.

In the long run, the current situation should be an inspiration to strive toward processing and consuming much more of the soybean production total, relying less on exports overall. The best part about such a scenario is the only thing missing is commitment.

Renewable diesel technology allows unlimited levels of vegetable oil to be processed into diesel, unlike biodiesel that is simply a blend. If there is a surplus of soybeans, the fuel versus food fight should not be a valid roadblock. And if it adds to the supply of diesel, it simply extends the life of limited carbon-based oil supplies, not necessarily replacing them. The key there would be to have traditional oil processing companies expand in the renewable diesel sector. But a growing, healthy domestic market would not only be much more reliable but so much better for the economy and the environment.

The fact that only 39% of the 2025-26 crop is expected to be exported compared to 46% in 2015-16 shows progress is already being made, and the increased blending mandates going forward are a step in the right direction. Let's just hope the standoff with China strengthens the resolve and brings all parties together.

For those wondering, I specifically focused on soybeans for this post, but the same thing applies to Canadian canola. I simply didn't want to look like I was suggesting taking pressure off Ottawa to work with China to restore trade for the short-term benefits. But there is no reason that planned crushing facilities that have stalled due to a lack of reliable production couldn't help to replace our reliance on China in the long run. With an emphasis put on further developing renewable diesel production facilities to complement the crush industry, this helps to power the country while making Western Canada much more predictably prosperous.

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Mitch Miller can be reached at mitchmiller.dtn@gmail.com

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