It has been quite a week with grain and energy prices retreating to some extent following a ray of sunshine in the Strait of Hormuz. Of course, we really don't know what that means with all sides not necessarily agreeing to the same thing. Truth continues to be in short supply, but of course trading algorithms just do what they are told. I'm sure many of them are guided by artificial intelligence scouring the web for any hope that peace might break out in the Middle East.

Keep in mind that I am no military analyst although I have traveled to that region many times and hope to go back there someday. I even have a friend that is traveling to Saudi Arabia this week and he has assured me that everything is going to be OK. There is lots of disagreement, but hopefully peace will break out in two weeks' time. I know many of you must think I'm looking at this through rose-colored classes.

The geopolitical events of this week started making me think about a greater vision of what's going on. There is no question that this problem in Iran is dominating our headlines, dominating the energy markets and therefore it's helping to dominate the grain markets. At the same time, we need to keep in mind that we had enough problems before that started. From what I can remember, the U.S. Supreme Court did rule against some of the U.S. administration's tariffs. However, President Donald Trump did impose another 10% tariff globally on other countries. There's also the U.S. tariffs against specific Canadian industries like aluminum and steel.

You might remember that I had said that as Canadians we're going to face higher prices and less choices and maybe instead lower incomes. This was based on punitive tariffs between the United States and Canada with the possible suspension of the Canadian-United States-Mexico trade agreement. As we careen into mid-April, we have certainly seen some of that, but most of it has to do with the rise in energy prices during the last two or three weeks. We still have many of the same problems with the tariffs, but it might not be turning out exactly the way I thought it was. Part of the reason for that is market fundamentals are fluid at the best of times and the market can shift very quickly.

Case in point is the example of Canadian soybeans. China has been a big buyer of Canadian soybeans both in the GMO and the non-GMO realm since harvest. Part of this has been because there's been a thaw in Chinese/Canadian relations but it's also because we have good quality, and the Americans face a 10% tariff and their soybeans going into China. This has resulted in many American soybeans exports not being competitive into the Chinese market simply because of this 10% charge.

As we all know, China has a voracious appetite for soybeans and we should also know that Canada could keep that appetite satisfied for about 10 days if we shipped them every Canadian soybean. Of course, Canada also ships soybeans to other markets like Indonesia and other parts of Southeast Asia, but these markets are being inundated by discounted American soybeans because they can't ship them into China with their 10% tariff. So, what we have is a Canadian soybean export market which is flexing and shifting rapidly in order to capture bigger opportunities for Canadian farmers.

Iran is also the second largest buyer of Canadian soybeans. Yes, you read that right. How do you think that is going now? Simply put, Canadian foreign policy with Iran has not been easy either. You might remember the shooting down of Ukrainian flight 752 on Jan. 8th, 2020, killing 176 people, mostly Canadian. Canadian and Iranian government are still battling over reparations for that. It didn't stop us every year from shipping large amounts of Canadian soybeans into Iran which is looked at now as a pariah in the West.

So, markets are shifting rapidly. Agricultural commodities shipped in containers can be turned around on a dime in mid ocean. At the same time, markets hate uncertainty and we have that in spades now. In fact, I listened last week to Dwight Gerling, the CEO of the Canadian company DG Global Grains, and he said he's never seen uncertainty be so high as it is now. In the world of trading cash grains in containers or not, it's pushing the limits on creativity.

Which is a good thing in a very tough market environment. The challenge for Canadian farmers will be to stay nimble enough to capture these fleeting opportunities while at the same time managing the ever-present risk that comes with them. In a world where geopolitics, tariffs, and energy markets can shift overnight, discipline and flexibility will be just as important as production. It's not an apocalypse. There is a way through it. Standing still is not an option.

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Philip Shaw can be reached at philip@philipshaw.ca

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