Canada’s farmers bring to mind the black knight in Monty Python and The Holy Grail.  They keep on fighting despite being thrashed, again and again, by the seemingly endless series of challenges thrown at them over the spring and summer months:  extreme weather patterns, NAFTA renegotiations, collateral damage from US-China tariffs, a diplomatic spat with Saudi Arabia and even a bizarre whodunnit relating to genetically modified wheat that mysteriously appeared in Alberta.  Many of these issues remain fluid, but here is a brief mid-season summary of where things stand down on the farm:

• Weather – No part of the country has had “normal” weather this growing season. The west has struggled with continued dryness all season, Central Canada had a cold wet spring followed by dry, searing heat punctuated with the occasional flooding rain storm, and the Maritimes experienced early season flooding and unseasonable heat over the summer months.  Despite these challenges, our property management team reports that, for most Canadian farmers, the crops are looking quite good. Are this summer’s weather patterns an aberration or the new normal caused by climate change?  The Economist recently published an excellent article on this debate here.

• NAFTA – The ongoing NAFTA re-negotiations have been front-page news for more than a year now, but despite almost 24/7 coverage, no details have been publicly revealed about the potential impacts that a new deal (if any) would have on Canadian farmers. One of President Trump’s favourite objects of scorn is Canada’s supply management system for dairy products.  Putting aside the fact that the US also heavily subsidizes its dairy sector, it is likely that any renewed NAFTA will mean changes for Canada’s dairy farmers.  Nonetheless, we do not believe these potential changes are a significant risk for Canada’s overall ag sector. Any changes to the current system would likely include generous transition assistance that would limit the impact of any changes for Canada’s dairy farmers.  In the long run, we believe that any trade deal that increases Canada’s access to booming world dairy markets, would be a net benefit to Canada’s dairy farmers.  Our current supply managed dairy system effectively shuts Canadian farmers out of the strong worldwide demand for dairy products (especially from China), so greater access to world markets would, in the long run, be an opportunity not a threat to Canada’s farmers. An excellent report by Al Mussel of the Agri-Food Policy Institute separates fact from fiction in the dairy dispute and can be found here.

• China-US Trade War – Canadian soy farmers have been caught in the crossfire of a tit-for-tat tariff war between China and the US. In early July, China levied a 25% tariff on soy imports from the US.  In anticipation of an expected oversupply of US soy on world markets, the price of soy has recently declined to USD$310 per metric ton, from USD$442 per ton in April.    The weak Canadian dollar has insulated farmers in this country to a certain extent, but prices are clearly depressed from where they would be in the absence of the trade dispute.  Our view is that the market has over reacted and in the long term, if the trade dispute is not resolved, it could represent a significant opportunity for Canadian soy producers.  China, the world’s largest soy importer, has an annual shortfall of 90 million tons of soybeans and the U.S. supplies 39% of that shortfall.  China, on the other hand represents 62% of US soy exports.  Brazil, which recently surpassed the US as the world’s largest soy producer, will be the primary beneficiary of these tariffs. Canadian soy producers, however, are also well positioned to benefit from strengthened export demand.  China’s massive appetite for imported soy, leads us to believe that current soy prices are a case of “short-term pain for long-term gain” for Canadian farmers.

• Diplomatic dispute with Saudi Arabia – In early August, Saudi Arabia took offence to Twitter posts by the Canadian government that urged the immediate release of human rights activists. The ensuing backlash from Saudi Arabia saw, among other trade-related measures, a ban on imports of Canadian wheat and barley.  Despite the publicity Saudi Arabia’s announcements have had, Canadian farmers will not notice much of a change. In 2017, Saudi purchased about 10% of Canadian barley exports – only 134,000 metric tons – and less than 1% of Canadian wheat exports.  The volumes of grain impacted by the Saudi ban are not significant and so we do not expect a material impact on Canadian farmers from the Saudi measures.

• GMO wheat mystery in Alberta – The most bizarre event to befall Canadian farmers this summer, was the mysterious appearance in July 2017 of an experimental strain of genetically modified wheat in a roadside ditch in Alberta. GMO canola, corn, soy and other crops are commonly grown in Canada and exported abroad, but GMO wheat is not approved for commercial production in Canada (or anywhere else in the world).  The wheat was identified after it survived an application of Round Up weed killer and, when the discovery was announced by Canadian Food Inspection Agency (“CFIA”) early this summer, Japan reacted by suspending wheat imports from Canada.  Japan buys roughly 1/3^rd of all Canadian wheat exports so the implications were serious for Canadian wheat producers.  Canadian wheat prices fell as a result. Fortunately, Japan resumed importing Canadian wheat on July 20^th after it was shown that GMO strains had not infiltrated our supply channels. But the mystery remains: how did this experimental strain of GMO wheat find its way to a roadside ditch in Alberta?  University researchers and the CFIA have reportedly ruled out all plausible explanations, leaving sabotage as the leading theory.  Did an anti-GM lobby group or a Russian agent scatter some genetically modified seeds along a roadside, knowing that the discovery would seriously disrupt Canadian wheat exports?  According to published reports, both these groups have a history of mischievous activities in modern agriculture systems, so the theory – though it sounds outlandish – is at least plausible.  It is unlikely that we will ever know for sure, but the mystery is further investigated by the Globe and Mail here.

On the whole, Canadian farmers seem to be taking all of these short-term irritants in stride.  Visits with Bonnefield’s farmers over the summer months have not revealed any serious issues of concern and most remain optimistic for a reasonable harvest over the coming months.

Contrasting this backdrop of short-term challenges are the long-term trends that will continue to benefit Canadian farmers over the coming decades.  These realities are pointedly summarized in the latest quarterly commentary from Jeremy Grantham, co-founder of Boston-based GMO, an investment firm with $71 billion in assets.  I urge you to read it.  His commentary puts into stark perspective the urgent threat climate change and soil erosion pose for the world’s food supply.  It also highlights the serious role that we, as both investors and long-term stewards of Canadian farmland, owe to current and future generations.  Grantham’s article, available here with a free registration, is a remarkable summary of why we do what we do here at Bonnefield, and why we are so focused on soil health and agrology.