Ag Outlook 2019
It’s been said that if you can predict something with enough time, you can manage it.
That was the tone of Fusion’s agriculture outlook 2019, presented by Brad Magnusson in full day sessions last week in Roblin and Miniota.
“This year has been an anomaly year in the agriculture markets,” said Magnusson. “We’ve gone through a very, very, profitable cycle in commodities like agriculture. But now, we’re on the downward side of a long term cycle, meaning prices aren’t as good.”
Turnout was high this year as everyone, understandably, is looking for price predictions and answers for the downturn, and Magnusson didn’t disappoint. With decades of farming, ag industry and banking experience, Magnusson takes a wider perspective than most analysts, who speak directly to a specific commodity and predict price based on supply and demand.
What’s driving markets has little to do with traditional supply and demand.
“In the last several years, and particularly this year, what’s driving markets has little to do with traditional supply and demand,” says Magnusson. “Our producers are unwilling participants in a trade war between the US and China that is backing up supply and creating difficult consequences for Canadian farmers. And, other countries, like Russia, have been significantly stepping up their production and exporting later into the year, overtaking some of our market share.”
Something like a trade war interrupting the flow of supply and demand is not part of the typical equation. So people need to be aware of what the interruptions are and why they’re occurring.
Sift through the noise, looking for longer term trends instead
“The key for farmers is to understand the influences, the risks and the damages, and the timing behind the pricing,” says Magnusson, “and to learn to sift through the day to day media noise and price fluctuations, looking for longer term trends instead.”
There are 5 key indicators currently ongoing that will affect commodity prices:
01. The Global Economy
People will always buy food, but they buy more and buy higher quality in good economic times. It’s the difference between selling hamburger and steak.
02. The North American Economy
What happens in the US doesn’t stay in the US. They are our largest trading partner and our friends, but they will always protect their interests.
03. The Price of Oil
82% of the cost of agriculture production is linked to price of oil, so this is where your profitability can fluctuate.
03. The Value of the Canadian Dollar
It’s easier to export when the dollar is comparatively low. Purchasers gain more buying power and we see solid returns.
05. The Major Players’ Signals
Our pricing is heavily influenced by the US, Russia, China, Brazil and others. Keeping an eye on their long term plans helps us predict our best position.
“There is a tremendous amount of soybean and grain in bins across North America this year, which represents softer prices, for now. But if the US can negotiate a deal with China which includes China increasing their purchasing to help balance the existing trade deficit, over the next 2 – 3 years, the surplus should begin to be taken up.”
The bottom line for 2019/20?
It looks like we can anticipate 3 – 4 years of a lower price cycle, until China steps up their purchasing.
Not the news anyone wants to hear, but with knowledge comes some ability to prepare.