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Economists foresee market disarray









March 26, 2019 - Three members of Agri-Food Economic Systems foresee disarray for agriculture markets this year with possibly soaring hog prices and collapsing soybean and canola prices.


African Swine Fever is claiming huge sow numbers in China – roughly equivalent to the combined Canadian and U.S. hog herds – so China will be shopping for more pork, but buying fewer soybeans and canola because the demand for hog feed will decline.


RaboBank predicts China will lose 20 per cent of its sow herd to the disease, the authors note. That would be about seven million sows; the U.S. sow herd is six million.


Markets are also being roiled by politics, including the Brexit issue for the European Union and the tariff war sparked by United States President Donald Trump.


“Open markets in agriculture adjust to an expected equilibrium of supply and demand, both domestic and international,” said Douglas Hedley, Agri-Food Economic Systems associate and co-author of the report.


But there is no clarity or stability in the “expected equilibrium” in the fall for field crops that will be planted this spring in Canada, the U.S. and other northern hemisphere countries, nor is there clarity in the livestock markets,” he said.


“The pathway to equilibrium is not even clear in this environment”.


Co-author Ted Bilyea said, “the Chinese sow herd is expected to decrease by about the size of the North American sow herd, this year alone, due to African Swine Fever. The implied gap in Chinese meat demand is spilling over into a global market lacking the capacity to quickly fill it.”


Co-author Al Mussel said “with the ongoing situation with U.S. soybean exports to China, and now Canadian canola, we face the remarkable prospect of a year with high livestock prices and exceptionally low crop prices, with little guidance for producers as to what to plant.”


“Resolution of trade tensions between the U.S. and China may only make this worse for Canada, and China is likely to be in no hurry to resume buying canola from Canada.”


“The terms of trade that will face Canada at harvest time this year are now subject to major unknowns,” Mussel said.