RELIABLE ACTION IN UNCERTAIN TIMES
BY NEIL TOWNSEND
When I became a market analyst 20 years ago, the world of agriculture seemed simpler. Today, I must admit to a deep frustration. My favoured method of analysis is so-called fundamentals. Calculating the difference between supply and demand is a matter of real-world mathematics. If this difference narrows, as measured by ending stocks, prices should respond favourably (bullish). If the surplus expands, prices come under pressure (bearish). A key component of fundamental analysis is having strong confidence in reliable data; the analysis is only as good as the underlying inputs. I have confidently relied on good data most of my career.
Now, however, the world is seemingly more complex and, frustratingly, despite a full generation of supposed advancement, data has never felt so unreliable and suspect. This uncertainty can create inertia. Under this curse of uncertainty you stop making decisions because you don’t trust the data. But the world doesn’t stop moving, bills need to be paid and supply chains need to be serviced so mouths can be fed.
Uncertainty may define 2025 with its veritable minefield of potential unknowns. There has been a dramatic regime change in the United States. President Trump has come in hot and promises to reshape the U.S. economy as well as global geopolitics and trade relationships. China struggles to stabilize its economy while its simmering tensions with the U.S. remain unresolved. The Russia–Ukraine war continues. Generally, artificial intelligence has moved beyond science fiction into reality, along with all its positive, negative and unknown consequences.
A cause of domestic uncertainty, Canada will hold an election sometime between spring and fall. Regardless of outcome, the new government is likely to chart a fresh course. It must also deal with fallout from ongoing geopolitical and economic turmoil.
It’s almost certain 2025 will be rife with trade tensions. China and the U.S. have both targeted Canada. The latter is discussing broad-based tariffs that would potentially cover all goods. China, meanwhile, has identified canola as a transgressor that requires limitations.
Against this backdrop of uncertainty, and knowing things can change for better or worse, farmers will nonetheless have to make decisions on when to buy inputs and sell their crops. A sense of powerlessness can lead to an all-or-nothing mentality. Akin to ripping off the Band-Aid, the inclination will be to sell out and simply not think about the markets. This behaviour is best countered by a rational and measured approach. The best strategy, in good as well as uncertain times, is incremental selling. This involves breaking production, or even purchases, into increments and moving forward a chunk at a time.
Strategy must be intentional. If you do nothing, it must be intentional. I call this strategic inertia. If you actively sell, you must calculate the proper size of your market participation. The goal is to manage risk and opportunity.
Unfortunately, the remainder of 2024/25 and the early stages of 2025/26 look to be tilted heavily toward the uncertain, or risky side, of the equation. All things considered, making small forward sales of between 10 and 25 per cent of expected production at positive return on investment, even if narrow, is a proper and advisable strategy.
Change is a constant, and there is no way to know what the future holds. While it looks bleak on the trade relationship front, we must remember there is legitimate demand for our commodities, and other countries may increase their purchases if and when barriers are imposed.
In the fall of 2025, the threat of tariffs may not be an issue, but new variables will hold sway. Despite this, the message will remain the same: incremental selling is the best risk management tool against an uncertain future.
Neil Townsend is chief market analyst with FarmLink Marketing Solutions.
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