Markets are Too Impatient for China Shipments

01:35PM Jan 21, 2020
Markets are anxious for shipments to China to begin.
( Farm Journal )

Soybeans were off double-digits in Tuesday trade as the markets showed impatience for shipments under the Phase 1 trade deal with China. But Farm Bureau economist Veronica Nigh cautions it will still take some time for that agreement to start paying off.

“That total amount of purchases (under the Phase One agreement) will be will be completed over the course of 2020,” Nigh notes. “So that could mean that we won't see significant purchases of certain commodities until the actual season they're harvested. So, we might not see those big purchases of soybeans or corn or of any similar until October, November, December of 2020. And I think that impatience in the market is the reflection of not wanting to wait until the end of the year for that, for the sales to come to fruition.”

But the Chinese insist they will make purchases according to market demands and prices. Will U.S. grains be able to compete against Brazilian product for Chinese purchases?

“The inclusion of that market-based element, I think there's lots of different ways to interpret that,” Nigh says. “One is that the Chinese are basically saying, ‘Hey, we're not going to cancel our Brazilian purchases just to make good on this agreement with the US.’ That doesn't make sense for us. We’d have fees associated with canceled contracts.'

“The other thing is that, you know, it certainly could be some hopefulness built into that agreement that both sides are saying, ‘Hey, you know, the US will be much more price competitive when the tariffs go away.’”

The Farm Bureau on Wednesday hedged its bet somewhat on whether markets will fully rebound in 2020 on the heels of trade agreements with China, Canada, Mexico and Japan. The delegate body rejected a move to strip language on the Market Facilitation Program from its platform, leaving the door open for a lobbying effort for more trade aid in 2020.

“The markets haven't fully rebounded from the pain of the last few years on the trade front, so we want the flexibility to continue to advocate for a market facilitation program or something similar, until the trade situation with China is fully resolved,” Nigh says.

But ultimately, Nigh says farmers have increased optimism for 2020.

“I think farmers and ranchers have certainly shown that they're willing to be patient, that they're willing to put trust and faith in the administration that it's going to follow through on the promises that it makes,” she says. “So, with a Phase One with Japan having been signed and going into effect, and then also USMCA, it seems like the administration is following through on the promises that it makes on the trade front. So if you were a betting person and you're looking at the situation that we've had thus far, in the last six months, it seems that that would be a good bet that that patience would be well deserved.”

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