Under the Agridome

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We have had a lot of headwinds for the Canadian economy this year and it came to a bit of a head this past week when the Bank of Canada cut interest rates by 25 basis points, putting the overnight rate at 2.5%. You might remember me musing openly earlier this year about having higher prices, fewer choices and lower economic growth. It would seem we have that now and the Bank of Canada was reacting to try to make things better.

Bank of Canada Governor Tiff Macklem talked about a softening labour market in the removal of retaliatory tariffs as being one reason for lowering interest rates. To put it more succinctly, we had Canadian domestic product slipping by about 1.5% in the second quarter of this year and our exports from Canada fell by 25% in the same quarter. So, it's been a rough patch and with the continuing trade war we need some help.

I say the continuing trade war because we all know that our American friends put tariffs on our automobiles, steel and aluminum industries at a 50% level. We also know that the Chinese have put tariffs on canola, pork and seafood which is causing all kinds of problems throughout rural Canada.

Interest rates are always the hammer in monetary policy and cutting those interest rates are supposed to serve as a stimulant for investment and demand. They can also be inflationary, but it seems like inflation is under control.

Lower interest rates are also negative to the Canadian dollar which is currently fluttering in the 72-cent level U.S. That is significantly good for agricultural commodities across our country. Simply put, it's a stimulus for cash prices at the farm gate.

It would have been easy to ignore that this past week as we've had several things land in the news which can cover that up. However, I think it is important or all of us in Canadian agriculture to realize that we're still in quite a fight for this country and our economy. Those American and Chinese tariffs are punitive, and it is having a real impact on our economic growth and national wealth. Finding a solution to that which works for all of us will continue to be a real challenge.

It is going to be difficult, and we saw that a bit this past week when Saskatchewan Premier Scott Moe returned from a mission, he put together to go to China as one way to mitigate those Chinese tariffs on canola. As we all know, canola is one of the top crops coming out of Saskatchewan. On his return, he was definitely much more measured in his speech saying it was a very difficult and complicated situation. He also said that the lifting of tariffs on Chinese EVs likely wouldn't get those canola tariffs lifted.

In the meantime, of course harvest is in full swing across Western Canada and just starting to ramp up here in Ontario. It is the same in the greater North American Corn Belt and there is much conjecture about the crop in the field, especially after the USDA weighed in last Friday with its new World Agricultural Supply and Demand Estimates (WASDE) projections. (See https://www.dtnpf.com/… and https://www.dtnpf.com/…)

Leading up to the report, I think people were expecting lower production numbers as we had one of the driest Augusts on record. However, the USDA actually increased U.S. corn production 72 million bushels (mb) pushing the projected record total up to 16.814 billion bushels (bb). This happened despite a 2.1 bushel per acre (bpa) cut in 2025 yield down to 186.7 bpa. The lower yield was offset from USDA by increasing planted acreage and expected harvested acreage. So, we are smashing the previous production record that took place in 2023-24 of 15.34 bb of corn. The U.S. planted corn acreage was increased 1.4 million acres, to 98.7 million acres, and harvested acreage is now projected to be 90 million acres, up 1.3 million acres from last month.

That sure surprised me. In fact, the USDA now is projecting U.S. corn planted acreage to be 3.5 million acres more than they predicted on June 30! Now I'm shaking my head. On the soybean side of the ledger, it wasn't so dramatic. U.S. domestic soybean yield was cut one-tenth of a bushel down to 53.5 bpa which was on planted acreage at 81.1 million acres and harvested acreage at 80.3 million acres. This put the total soybean production coming in this year at 4.301 bb. So, the driest August on record cost 0.1 bushel per acre.

The crazy part of all this is that the price of corn got back to the level it was on July 4 of this year, which is kind of amazing in my eyes, especially with the number of bushels that we're talking about. This past week we have lost 7 cents a bushel on corn and a few cents on soybeans. However, prices are higher than they were a year ago. It is almost like there's something missing in all this from some bullish undertone in a very bearish market.

What could it be? Well, you know my answer: I don't know. Sometimes I think that when harvest results come in, it won't be as good as projected. Maybe that southern rust that infused a lot of northern U.S. corn-growing states is taking bushels away. However, at the same time basis levels and cost of carry are showing a truly bearish market.

As a Canadian farmer I look out at my fields now as harvest gets closer. Whether it's the loonie, interest rates, crop prices or the broader challenges in our Canadian economy, there's no shortage of marketing factors to juggle. The challenge ahead is to stay disciplined, manage the volatility as best we can, and recognize that in 2025 laser-focused marketing will make all the difference.

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Philip Shaw can be reached at philip@philipshaw.ca

Follow him on social platform X @Agridome

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