12/11/18 — It’s been 11 days since the dinner meeting between Chinese President Xi Jinping and U.S. President Donald Trump, and the so-called agreement to negotiate a trade agreement in the next 90 days. After a deal of uncertainty about what the two sides agreed to, now it appears quite clear that China did agree to buy U.S. ag and energy products in exchange for the U.S. not imposing additional tariffs on China.
The market reaction was short (essentially, all the gains were on the open Monday morning, Dec. 3) in grains, and even less impressive in the stock market. Stocks went from being nearly back at the old highs, to being back to the yearly lows after having some its worst weeks of the year. Currently, markets don’t seem too impressed with the negotiations or the potential for them to improve later.
Meanwhile a Chinese company executive was arrested in Canada on Dec. 1, the same day as the historic meeting between the two sides was taking place. Now, the U.S. is seeking extradition for the Chinese CFO of the company Huawei who was arrested (the daughter of the founder and a company symbol).
Markets are a bit higher this morning after news of last night’s conversation between China’s Vice Premier Liu He, U.S. Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer over some of the terms of the trade negotiations over the next months. They discussed the large purchases of U.S. ag products and revisions of Chinese intellectual property laws, with the discussion clearly set up to deflect distractions of the arrest of the CFO of Chinese company Huawei in Canada on Dec. 1 (the U.S. is trying to extradite her for a U.S. trial) and the market reaction to that whole scenario.
That has brought soybeans into positive territory today, currently up 4c which is small compared to the stock market rally overnight. News that Liu will be traveling to the U.S. shortly after the New Year is good news indeed, especially since these plans were made after the Huawei executive’s arrest. But what U.S. agriculture needs more than anything are the actual purchases by the Chinese of our soybeans. We have just way too much stocks of soybeans in the U.S., and the abrupt halt of Chinese imports of our product earlier this year is clearly an indication that the Chinese crushers/feed processors aren’t making the decisions; the government clearly is.
What U.S. negotiators need to impress upon the Chinese government is if we don’t quickly start exporting our massive surplus of soybeans, will have no choice but to switch away from focusing on being a supplier of Chinese soybean needs. Instead, financially we will have no choice but to switch a huge amount of acres away from soybeans and into another product. For our government (thank God) doesn’t tell us what to plant, produce, who to hire, or anything else that governments can do when interfering in business (as the Chinese soybean processors have quickly found out). And while U.S. ag is currently upset with President Trump over the Chinese trade dispute, we also are or will be equally upset with our customer, China, for ceasing all imports of the product — even if the soy processing plant wanted to buy U.S. products.
South American weather is currently turning warmer/drier in the southern portion of Brazil, while Argentina is having a bit more rain. The 7-day forecast is for below normal precip in the southern 75% of Brazil, with normal precip in Argentina and northern Brazil. Temps will be above normal in Argentina, and below normal temps in northern Brazil. The 14-day forecast is a bit wetter for both Argentina and Brazil, with temps similar to the 7 day forecast.
U.S. weather is turning warmer, with above normal temps all across the U.S. the next 14 days, and below normal precip for the most part. If you don’t have a white Christmas now, you may not get one in 2018!
But one thing is also clear: If the U.S. and Chinese governments can’t get along enough to come up with some kind of trade agreement acceptable to both countries, then the U.S. farmer, the Chinese soy processor, the Chinese feed producer, and the Chinese meat producers will not have a happy New Year, but another miserable year indeed! In fact, perhaps even the worst year they have ever experienced in their professional career.