With most of Canada locked in a deep freeze, the warmth and sunshine of South America may seem too far away to have any tangible effect on our lives. However, what happens there can have a meaningful impact on Canadian farm prices. Read on for the latest developments.
Tax Reforms in Argentina: A Shift in Policy
Argentina’s government, under President Javier Milei, has pledged to address longstanding tax burdens on its farmers. Currently, soybean export taxes stand at a steep 33%, while corn and wheat are taxed at 12%. These taxes, applied on a FOB basis, force farmers to absorb additional costs like transportation and processing. The proposed reductions - targeted at 3 to 5% by 2025 - mark the first potential relief in decades.
For Canadian farmers, these developments signal a potential increase in Argentina's competitiveness in global markets. And it’s not just soybeans that could be affected. Pulses like chickpeas and green peas, which face similar tax burdens, may also see changes. Monitoring these reforms is crucial as 2024 winds down. Any shifts in the Argentine supply for a given crop could affect global pricing in regions where Canadian crops compete.
Brazil and China: A Growing Partnership
Brazil is strengthening its trade ties with China, the world’s largest soybean importer, by finalizing a trade agreement focused on sustainability. Brazil’s commitment to providing deforestation-free soybeans adds a layer of cost to production but ensures continued access to the lucrative Chinese market.
For Canadian farmers, this presents both a challenge and an opportunity. While Brazil’s moves could challenge Canadian exports to China, Canada’s reputation for producing high-quality soybeans, including IP and non-GMO beans, offers a chance to target niche markets. At the same time, Brazil’s expanding trade relations with China against a backdrop of increasing US-China tensions, offer Canada an incentive to work to maintain its trade relations with China.
Currency Dynamics: Brazil’s Advantage
Brazil’s weak currency, the real, is trading near 6:1 against the US dollar. This is very weak by the standards of the past 20 years, providing a significant advantage for its farmers. While some operating costs are in local currency, export revenues are in US dollars, boosting profitability. However, the uncertainty surrounding Brazilian President Lula da Silva’s health has added volatility to the currency. Brazilian farmers could suffer if today’s currency devaluation becomes disorderly or extreme, undermining investor and trade partner confidence in Brazil.
For Canadian farmers, the weak Brazilian currency poses a competitive disadvantage in global markets. However, some of the damage has been offset because the Canadian dollar is also weak against the US dollar.
Weather and Crop Conditions: A Favorable Outlook
South America’s weather conditions have been conducive to strong crop growth. Argentina has made significant planting progress, with almost 60% of corn and more than two-thirds of soybeans already planted, according to the Buenos Aires Grain Exchange. Recent rains have benefited both Argentina and Brazil, while forecasts predict no major weather threats in the coming weeks.
The absence of adverse weather means South America is likely on track for strong yields and production. For Canadian farmers, this is a negative development. Still, it is worth remembering that South American crops aren’t safely harvested yet. A shift to adverse weather in January could lift prices and set up opportunities for sales, even if the recovery is eventually blunted by a generally favourable situation for South American farmers today.
