The market and traders continue to digest the idea that the U.S. and China may have a framework set for a potential trade deal. That’s as talk is surfacing that U.S. Commerce Secretary Wilbur Ross may be heading to Beijing next week to continue the trade negotiations.
While that agreement isn’t signed, Ross says the U.S. will drop its tariff threats against China, opening the door for more ag exports to China. That positive rhetoric helped fuel commodity markets Monday.
“It's lifting a veil over the market - an anvil if you will, a bearish anvil as we think about it - because the Chinese and the threats of course of U.S. tariffs and retaliatory threats were something big markets were very concerned about,” said Dan Basse, President and CEO of AgResource Company.
He said despite the fact specifics are missing from the highly talked about framework, he said it’s a big deal to the markets. However, Basse said this news could have a bigger impact on new crop shipments, versus old crop.
“It means their business is getting back to normal, and so if we think about where the soybean market was prior to all of this debate over tariffs, July beans were trading around $10.45 to $10 50, ow we think the market will head back in that direction,” said Basse. “We don't have to worry about waking up every morning and fearing the potential of retaliatory story or some kind of tariffs from China.”
It’s the new crop story with which Joe Vaclavik, president of Standard Grain agrees. China may have cancelled a big order of U.S. soybeans last Friday, but that has less to do with trade and more to do with the fact that South American soybeans are cheaper, and at this point, price is king.
“The positive headline is this: come U.S. harvest this fall – August, September, October – as of right now, it looks like China will be back to buying U.S. beans as they usually do, so certainly a positive headline,” said Vaclavik.
It’s that opportunity further down the road that could be a big boost for U.S. exports, which could hint at more bullish rhetoric for soybeans.
“We're now looking at the possibility of record large soybean exports in the upcoming crop year, maybe as large as 2.5 billion bushels,” said Basse. “We're looking at corn and sorghum exports that are going to be much larger - in the case of sorghum it could be 7 to 9 million metric tons. These were not possible until we got that announcement on the weekend. So that's the rejoicing that we're seeing in the markets here this morning.”
Basse said more than just grain and oilseed shipments, U.S. meat exports could see major gains from a possible trade deal. Basse said the reality is China still has hefty stocks of both corn and wheat. However, meat shipments are not only a major want for China, but a need.
“We think really it's the meat sector, or the livestock sector that will do the best under this,” said Basse. “We think the appetite from China for U.S. beef is sizable. We think there could be big rallies as we start to see placements dropping here, and so we are most optimistic on this whole accord relative to the meats.
Basse said the question now becomes whether the U.S. has the capacity to meet the growing hunger in China.
“I want farmers to know that there's a big demand sucking sound that will be down at the Gulf, and it's called exports, that will be heading to Asia China and other countries,” said Basse. “So when we think about the opportunities, the U.S. has a real big export opportunity. In fact, we may not have enough capacity from September until January, February timeframe, so that demand will be forthcoming and that limits the downside.”
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