Yes, there was a USDA report this week, but that’s not what stole market headlines or moved prices. Instead, it was news out of China. President Donald Trump signed off on a so-called phase-one trade deal with China, averting the Dec. 15 introduction of a new wave of U.S. tariffs on about $160 billion of consumer goods from the Asian nation, according to Bloomberg.
The long-awaited trade news supported grain prices. January soybeans closed around 17¢ higher for the week ending Dec. 13, while March corn ended around 4¢ higher. March wheat closed 8.5¢ higher.
It’s been an interesting 18 months. Both China and the U.S. had to win something. Here are the Chinese official statement points on Phase One of the trade deal:
- They will cancel their tariffs against U.S. products that had been scheduled to go into effect Sunday and they hope the U.S. will follow up on its promises.
- China has agreed to increase imports of U.S. agriculture goods, energy, pharmaceutical goods and financial services.
- As their markets expand, they will continue importing high quality and competitive goods and services.
- The main concern for China was the cancellation of tariffs on Chinese goods.
- They will continue discussions on specifics surround the signing of the trade accord.
- The progress will have positive effects on trade, financial markets and overall Investment.
- By reaching a deal it will be good for China, the U.S. and the rest of the world.
- Both sides will implement follow up process as soon as possible.
- They expect the deal to increase confidence in world markets.
- The first phase will add protections for foreign firms interests in China.
- The U.S. will continue to follow up on its promise to cancel tariffs on a phased basis.
President Trump Tweeted after the Chinese news conference:
We have agreed to a very large Phase One Deal with China. They have agreed to many structural changes and massive purchases of Agricultural Product, Energy, and Manufactured Goods, plus much more. The 25% Tariffs will remain as is, with 7 1/2% put on much of the remainder....— Donald J. Trump (@realDonaldTrump) December 13, 2019
.....The Penalty Tariffs set for December 15th will not be charged because of the fact that we made the deal. We will begin negotiations on the Phase Two Deal immediately, rather than waiting until after the 2020 Election. This is an amazing deal for all. Thank you!— Donald J. Trump (@realDonaldTrump) December 13, 2019
During their news conference, China tapped danced and said much was accomplished and much was to be done in details and that China has great needs and the U.S. is a great provider however we (China) will protect our interests and trading partners (meaning the “new” agreements with “new” suppliers).
The Bottom Line
China seems to have a different understanding of Phase One. There is nothing on the horizon other than weather to affect food prices that would tend to hinder our economy. It is perceived manufacturing creates more new jobs than agriculture.
The good news is that the U.S. dollar has been trading weaker including in response to the news but closed nearly 500 pts. off the lows of the day while the Brazilian Real (currency) traded higher for the week. Argentina is in an economic/tax crisis, but China has become their new source of capital. China stated in their news conference that they will protect their trading partners.
The charts below showed how corn and soybeans reacted this week. Soybeans managed to recover 50% of the losses since October. The large carry to July, where U.S. is 40¢ higher is a concern and maybe an opportunity for needed cash flow?
Corn, something China hasn’t purchased much of, struggles at overhead resistance with it to suggesting U.S. uncompetitive through 2020 without some China purchases of ethanol, ddgs, and maybe corn itself. The Chinese reluctance to detail when, how much and at what price they will buy, is a major hurdle to price forecasting.
(click to enlarge)
Find more written and audio commentary from Gulke at AgWeb.com/Gulke