On November 8, America elected Donald Trump as the 45th President of the United States. The results of the election were surprising – the vast majority of national polls and forecasts had Hillary Clinton as the most likely winner, creating sudden uncertainty in the markets.
In the aftermath of the U.S. election, commodity and stock markets experienced sharp declines while investments traditionally seen as safe during turmoil (such as gold) rallied. The markets reacted in a similar fashion to the Brexit decision. Volatility in the markets quickly subsided.
What does a Trump presidency mean for Canadian agriculture? Here are three economic considerations:
1. Canada is a trading nation
Exports are important to Canadian agriculture. The United States is Canada’s single largest trading partner with 31% of agriculture exports (23% of crop exports and 83% of animal exports) going to the U.S. in 2015. Our share of exports to the U.S. jumps to 74% when considering food and beverage products.
While President-elect Trump campaign discussed current trade agreements, it is unlikely that we’ll see immediate changes to Canada’s agriculture and agri-food trade relationship with the U.S. Trade. The level of integration in the North American agri-food supply chain (for beef, pork, grains, etc.) appears safe at the moment.
2. Impacts to the Canadian dollar and competitiveness
Market volatility will cause fluctuations in the value of the Canadian dollar relative to the U.S. dollar and other currencies, impacting the competitiveness of Canadian exports. This is important because the weak Canadian dollar (relative to its 5-year average) has been supporting profitability of Canadian agricultural operations lately. On one side, the loonie could depreciate some more as the U.S. dollar is seen as a safe haven in periods of uncertainty.
On the other hand, economic fundamentals are what matter to the financial markets. The outlook for the U.S. economy will drive the interest rate decisions of the U.S. Federal Reserve and thus impact the loonie. Prior to the election, the financial markets predicted an 84% chance that the U.S. Fed would increase its key policy rate in December. Market expectations of a rate increase declined to 74 % after the election results but since increased to 86%. An increase in interest rates would lower the relative value of the loonie and be a benefit to Canadian agriculture.
3. Future direction of U.S. agriculture policy
Little has been shared during the election campaign about priorities for agriculture, so there are many unknowns about future U.S. agricultural policy. President-elect Trump has however appeared supportive of the U.S. ethanol mandate on the campaign trail. This policy sustains the demand for commodities in the North American marketplace and is positive from a grain and oilseed pricing standpoint.
More information will be released over the course of the next few months. In the short-term, monitoring financial markets is important.