Phase One is Signed, Will China Start Buying U.S. Ag Products Soon?

04:00PM Jan 17, 2020
U.S., China
While there were rumors on Friday of China in the market buying U.S. corn, some analysts say the waiting game for what and when China will buy from the U.S. could continue.
( MGN )

With so much going on in trade news this week, farmers might be wondering how this affects their marketing plan for 2020.

“I think the easy answer is you buy the rumor, sell the fact,” said Payne. “We saw the run -up here in the last couple of weeks where prices jumped, so we have seen a little premium added in.”

Payne said for at least two days this week, the lack of enthusiasm in the markets was sprouting from doubts about details. He said there was little information around how quickly major purchases are going to happen, and exactly what they are going to buy.

“Then, on the other side of it, China didn't really behave outside of some enthusiasm on their end,” added Payne. “They haven't really dictated what they're doing with their tariffs and we're still battling the same issues we battled before this whole trade deal started with tariffs on DDGs, tariffs on ethanol. So, what's going to happen with that? I think that's what we're waiting on. It's going to be a waiting game for now.”

During the signing ceremony Wednesday, Vice Premier of the People’s Republic of China Liu He made a statement that seemed to catch the market by surprise.

“The two sides have agreed based on the market demand in China,” he said before signing the agreement. “In line with market terms, Chinese businesses will purchase $40 billion U.S. dollars of agricultural products from the United States annually. If the demand is strong, the companies may buy more.”

Kevin Duling, of KD Investors, said while the statement seemed to be the focus of the markets, he doesn’t think it’s a deal breaker for the U.S.

“I think that was misinterpreted a little bit,” said Duling. “What that tells me is, if they're going to really increase their spending for ag products, they’re not going to jump up and down and say, ‘Hey, we're getting ready to buy here.’ They're going to play possum. They're going to step back. They're going to get let the social media feuds begin and then they'll step in quietly, right after a USDA report or something like that, and they'll acquire, they're not going to forecast it.”

Duling pointed out this demand won’t be new market demand; it will be demand that will chip away from what China is buying somewhere else.

“When you shift demand, who's our competition? Well, it's Brazil, South America, and they're sitting on a massive crop right now. So, I think we're dealing with a market a little bit more like last year in that the U.S. is going to get all the Chinese business. Brazil and Argentina are going to essentially supply the rest of the world. So, the spreads can't get too far away here.”

If China is buying based on market conditions, are commodities like soybeans, corn, wheat and pork priced competitively? Duling said it depends.   

“We are [priced competitively] in certain commodities like soft white wheat,” said Duling. “With hard red spring wheat, we are [too], but only if they get the right quality mix. The hard part is the protein with the wheat.”

“On corn, and specifically soybeans, they're flooded with product right now,” added Payne. “They've been buying a lot, but I still think it comes down to U.S. acreage for this next year. So, once we get into the second half of February, I think the markets are going to start to look at what’s being planted, what are they buying and that's where I think that prices can jump.”

Whether it’s a major down day or a positive trading day in the markets, Payne’s advice for producers right now is to pause. To not overreact, because the markets could quickly shift its momentum.

 “In the case of corn, we are the cheapest in the world, so I think we're going to see exports pick up here,” said Payne.

Corn may be priced right for China. On Friday, corn closed up double digits. Duling said most of that was from rumors China was buying corn from the Pacific Northwest. 

“The cash market is going to dictate the move higher,” added Duling. “So, you’ll start to see it move first, and then that’s the sign to me that’s something is happening behind the scenes.”