Crops Surge as China Moves to Increase U.S. Farm Purchases

09:35AM Sep 13, 2019
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China's announcement to delay tariffs on U.S. soy and hogs has moved markets upward on Friday.
( Farm Journal )

(Bloomberg) -- U.S. agriculture markets are finally catching a break as signs that China will once again seek American exports spark big weekly gains for corn, soybeans, cotton and hogs.

China is encouraging companies to buy U.S. farm products, and will exclude them from added tariffs. Many crop prices are heading for their best week since at least June on optimism that Beijing and Washington are inching toward a deal. The year-long trade spat has undercut farmer profits and boosted debt levels in the U.S. as Chinese demand fell off.

There was evidence of fresh Chinese buying Friday as the U.S. government reported 204,000 tons of soybeans sold to the Asian nation, the first such announcement in more than two months.

“We are hopeful that this apparent gesture of goodwill by China leads not only to more sales of U.S. pork, but that it contributes to a resolution of U.S.-China trade restrictions,” said David Herring, a North Carolina hog farmer and president of trade group National Pork Producers Council.

The trade news helped grain markets shrug off a report from the U.S. Department of Agriculture on Thursday that showed bigger yields than analysts had forecast. Even after the bearish supply news, corn, soybeans and wheat all closed higher. That’s a signal to many market watchers that prices may have found a near-term floor.

Traders holding short wagers “got all they could’ve hoped for in yesterday’s report,” Jacob Christy, a trader at The Andersons Inc., said in a video posted online. “It feels like we’re about to enter a re-balancing period.”

Prices could start to post “some further gains in the interim, and at the very least, the markets probably scored their interim lows for now,” he said.

December corn futures rose 0.2% to $3.68 a bushel at 10:32 a.m. Chicago time Friday, on pace for a weekly gain of 3.5%. Volumes in the option market have also climbed this week, another sign that traders could be changing their positioning. November soybean futures added to Thursday’s steep gains, heading for a weekly climb of 4.8% -- the biggest since May 31.

“Soybean prices should continue rising if China continues buying the product from the United States,” Ana Luiza Lodi, an analyst at INTL FCStone, said in a telephone interview. “But we are far from a tight supply-and-demand scenario, which may limit further gains.”

Chicago hog futures surged by as much as their expanded 4.5-cents-a-pound price limit on Friday. December futures are up 10% this week, the most since April.

Excluding U.S. pork from tariffs would be a “most welcome development,” farmer Herring, said in a statement.

Cotton Soars

Cotton futures traded in New York headed for a weekly gain of more than 7%, the steepest increase for a most-active contract since July 2016. China is the world’s biggest consumer of cotton, soybeans and pork.

Over the last week, the U.S. and China have taken multiple small steps to ease trade tensions. If the sides reach a deal, it would be a huge relief for American farmers who have also been struggling with extreme weather that has hampered their efforts.

In the meantime, some market watchers have also expressed skepticism over the USDA’s rosy picture for American crops. Many traders are expecting that the agency will be forced to make reductions in its yield forecasts, especially for soybeans, Christy of The Andersons said.

“As for today, we’ll see if the short-covering rally can be extended as we finish what’s been some pretty good reversal weeks for both corn and beans,” he said.

 

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