Canada Markets

Top 10 Canadian Ag Stories of 2018 -- Part 1

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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This chart highlights the heavy rains scattered across the Prairies during September, which led to significant harvest delays. (Graphic by Agriculture and Agri-Food Canada)

As is customary in the last week of the crop year, DTN counts down the top 10 DTN ag news stories of the calendar year, selected by DTN analysts, editors and reporters. In this space, we will look at what we consider the top 10 stories or events affecting Canadian agriculture in 2018. Five of the selected stories will be listed today, then the column will continue counting down the other five on New Year's Eve before we wipe the slate clean and look ahead to 2019.

Note that this countdown list is in no certain order.

1. CANADA, THE UNITED STATES AND MEXICO AGREE TO TERMS OF A NEW TRADE DEAL

Some have called it NAFTA 2.0, while officially it is called the United States-Canada-Mexico Agreement, or USMCA in the United States, and here at home, will be referred to as CUSMA, or Canada-United States-Mexico Agreement.

The process to reach the deal turned into a marathon, with Round 1 of negotiations taking place in August 2017, while it was initially thought that negotiations could reach an end by the end of 2017. Timelines pointed to Round 2 through Round 5 taking place in the fall of 2017 with little headway, with media reports in January 2018 pointing to the potential for President Donald Trump to pull out of the deal. The U.S. and Mexico reached a deal on Aug. 27, while a deal involving Canada was reached on Sept. 30.

The deal was applauded by many commodity groups across the Canadian agriculture sector, although concessions granted to the U.S. from Canada's dairy industry have not been received well by participants in that industry and has been accused of weakening eastern agriculture overall. While Canada won in a sense that the dispute mechanism was retained, criticisms arose over the granting of veto power to the U.S. over Canada's ability to create trade agreements with other countries, while Canada failed to resolve the steel and aluminum tariffs imposed by the U.S. through this process.

THINGS TO WATCH:

Export Development Canada's Trade Confidence Index at year-end shows signs of slipping lower, while the same survey shows that 52% of Canadian exporters are neutral on the deal signed at the recent G-20 meeting in Argentina and perhaps for good reason. A timeline reported by EDC indicates that the agreement signed in Argentina forms the starting line for the legislative steps to follow. In a perfect world, the agreement could become law in the U.S. by the end of July although this is the best-cased scenario.

Late-week Twitter communications from President Donald Trump, in his bid to build a wall along the Mexico border, stated that the border should be closed, the car industry should be brought back while going back to the trade enjoyed in pre-NAFTA days. This led one of Canada's journalists, Evan Solomon, to respond "Now he's turning back on the trade deal he just championed ... has the transactional President just put his biggest deal back on the table?"

2. CHALLENGING PRAIRIE HARVEST

Environment Canada rated weather challenges on the Prairies, including the unfavorable harvest weather faced in the western Prairies, as No. 3 on its top 10 list of Canadian weather stories for 2018. As stated by Environment Canada, "September frost is normal, but six weeks of cold and snow is unprecedented." Government statistics show that in Alberta, Edmonton's afternoon temperatures averaged 6.6 degrees Celsius colder than normal in September and a record 38.4 centimeters of snow fell, while compared to the average of 1 cm. In the first two days of October in Calgary, 38 cm of snow fell, the highest snowfall seen in 138 years of records. The attached graphic highlights the unfavorable September accumulations experienced during September.

Alberta's harvest was estimated at 17% complete on Sept. 4, 40% harvested as of Oct. 2 and reached 95% complete by Oct. 30. Debate will continue over the effect of the British Columbia wildfires on crop maturity in Alberta this season and its contribution to the late harvest. Record wildfires and smoky skies was the No. 1 weather story listed by Environment Canada for 2018. On Aug. 8, there were 460 fires burning in the province, 25 of significant size, while smoke from these fires affected more than 10 million Canadians from Victoria, British Columbia all the way to Ontario. Calgary recorded 478 hours of smoke and haze, which compares to the normal 12 hours recorded over a summer, while a consecutive 141 hours were reported between Aug. 14 and Aug. 20.

3. CHALLENGING ONTARIO HARVEST

Ontario reported early corn harvest taking place in late September and around the Thanksgiving weekend, although an extended period of rain and slow dragged harvest out well into December in some areas of the province. While corn harvest was mostly wrapped up this month, the province's Soybean Seasonal Summary pointed to the need for some soybean crops to come off in December and January, pending favorable conditions, while drying the crop will become a necessity.

The Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA) pointed to rainfall beginning in the third week of July in the province and remaining persistent through the end of August, ripe conditions for disease. The province's 2018 Grain Corn Ear Mould and Vomitoxin Survey reported the most severe outbreak of vomitoxin in history, with 60% of the 146 samples tested showing below 2 parts per million DON concentration, which compares to the five-year average of 89%. A further 15% of samples tested between 2 ppm and 5 ppm (7.6%) and 25% tested above 5 ppm (3.2%), with the five-year average in brackets.

OMFRA stated, "Beef cattle are very resistant to DON, unlike other species such as pigs. The Canadian Food Inspection Agency (CFIA) sets a maximum DON level in the total diet of five ppm for beef cattle four months and older and that DON-infected grains not exceed 50% of the diet."

This will prove to be a challenging marketing year for both producers and grain handlers.

4. COMPREHENSIVE AND PROGRESSIVE AGREEMENT FOR TRANS-PACIFIC PARTNERSHIP BECOMES REALITY

On March 11, the 11 countries involved signed this trade agreement in Santiago Chile, with a reported goal to "reduce or eliminate almost all tariffs between CPTPP member countries and remove all non-tariff barriers to trade," as stated by the Canadian government. Member countries include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. In January 2017, the U.S. announced that it would not join in.

Canada's legislation behind the CPTPP is Bill C-79, which received royal assent on Oct. 25, while Canada ratified the deal on Oct. 29 and Australia ratified the deal on Oct. 31, which triggered the deal for the first six ratifying countries 60 days later, or on Dec. 30. This deal is viewed to be one of the largest free trade deals in the world and is viewed as a major win for Canadian agriculture, with Agriculture and Agri-Food Canada stating the deal will open new markets for not only ag commodities but also for processed food products and beverages. Concessions were made within Canada's supply-managed markets to grant increased access to CPTPP countries, which is partially behind the "death by 1,000 cuts" statement by the dairy sector.

The U.S. agriculture industry has been vocal about that country's exclusion from the deal. A May report from the USDA stated the deal "threatens to cut into U.S. market share and depress profits for U.S. agricultural exporters by granting preferential access to international competitors." The Wall Street Journal recently quoted the head of the U.S. Wheat Associates who stated, "Japan is our largest, most reliable and valuable market," explaining that Japan buys roughly one-half of its imported wheat from the U.S. The article goes on to say that "today we face an imminent collapse" due to competitors having the ability to sell produce at a tariff rates close to 10% below what is faced by U.S. exporters. Watch for continued pressure on the U.S. administration to pursue a unilateral trade deal with Japan in the near future.

5. THE UNITED STATES LEVIES STEEL AND ALUMINUM TARIFFS, CANADA RESPONDS

On March 1, President Trump announced tariffs on steel and aluminum imports of 25% and 10% respectively, while initially exempting Canada and Mexico. The tariffs were said to be in the interest of national security, while China immediately responded that it will "take necessary measures to defend our rights." This was the start of a trade war that lasted through 2018 and will remain on the radar for 2019.

On May 31, the Trump administration announced that Canada would no longer be exempt, which Prime Minister Justin Trudeau responded as "totally unacceptable," with the Canadian government announcing dollar-for-dollar retaliatory duties of $16.6 billion on U.S. imports within hours of the U.S. announcement. Relations between the two leaders have since remained frosty and a public war of words has garnered a great deal of attention. The list of the Canadian imports from the U.S. facing tariffs is a lengthy one, including steel and aluminum and products, beer kegs, whiskey, food products and a wide array of items that were strategically chosen and were implemented on July 1. "This is a very strong Canadian action in response to a very bad U.S. decision," stated Foreign Affairs Minister Chrystia Freeland.

On Dec. 19, Freeland said that the U.S. tariffs on steel contradict the new NAFTA deal, although as stated above, this deal has yet to be ratified and this statement may carry little weight.

Trade uncertainty perhaps dominated markets over much of 2018 and many of these issues will remain on the radar as we move into 2019. Watch for the next five events or stories affecting Canadian agriculture to be released on Monday in this blog.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow him on Twitter @CliffJamieson

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