Canadian producers weathering market volatility, FCC trade report

Canadian producers are experiencing commodity price volatility due to an evolving and uncertain international trade environment, but that shouldn’t significantly impact Canada’s long-term export growth potential, according to a new Farm Credit Canada (FCC) trade report.

“The past has shown that as market volatility diminishes, Canadian commodity prices revert to levels more in line with their averages and growth in Canadian exports flourishes,” said JP Gervais, FCC’s chief agricultural economist in releasing the report, Navigating Trade Disruptions and Volatility.

As several of the world’s largest trading nations redefine their trade relationships through the negotiations or the imposition of tariffs, many smaller exporting countries are getting caught in the crossfire.

Canada has ranked as the world’s fifth-largest exporter of agriculture commodities since 2011. Between 2007 and 2014, Canada also ranked 12th or 13th in world exports of food products, a ranking that has since improved to 11th.

The report looks at five commodities within three major export categories: oilseeds, cereals and meats. These categories represented 41 per cent of Canada’s agricultural commodity and food product exports, worth a total of US$46.2 billion in 2017.

By analyzing periods of high volatility, the report shows that most large importers of Canadian canola and wheat tend to make smaller changes to their purchases than do importers of our soy, pork and beef.

“We found that short-term price volatility cuts both ways,” Gervais said. “While trade uncertainty produces hesitation among some buyers, it also opens new markets and causes buying sprees among countries hedging against higher prices in the future.”

Price volatility can also cause buyers to seek alternative sources for various commodities that may remain in place even after prices have normalized, so Canada needs to be aware of these opportunities and prepared to take advantage of them.

“Our large export markets – the U.S., China and Japan – will always be central to our success, but developing new markets can help diversify our trade performance when disruptions occur,” Gervais said.

Market volatility has an overall detrimental impact on the world economy, with the International Monetary Fund recently downgrading its world Gross Domestic Product projection from 3.9 per cent to 3.7 per cent expansion for 2018. Despite that reduction, the world’s appetite for Canadian agricultural commodities and food continues to grow, the report concludes.