Crazy week of reports. From the January 10th report, Phase One, USMCA…but still beans had a rough week. Shows volatility & one needs to be prepared. Last 60 days we have been in a tight range. Ethanol margins remain tight…China even mentioned ethanol in Phase One. South American weather & current harvest. Hogs could see the boost from the trade deals. There is money to be made in the cattle market right now.
The United States and China are set to take a step toward trade peace after 18 months of economic skirmishing. President Donald Trump and China’s chief trade negotiator plan to sign a modest agreement Wednesday that would ease some U.S. economic sanctions on China and have Beijing step up purchases of American farm products and other goods.
The deal would lower tensions in a fight that has slowed global growth, hurt American manufacturers and weighed on the Chinese economy. But the “Phase 1” agreement would do little to force China to make the major economic changes such as reducing unfair subsidies for its own companies.
Wednesday is an important day for the trade dispute that’s dragged on between China and the United States. The South China Morning Post confirms that the Chinese Vice Premier will be heading to Washington to participate in the signing ceremony for a partial trade agreement between the two nations.
The deal will boost U.S. agricultural commodity shipments to China in exchange for the White House cutting back on some of the existing tariffs on Chinese goods. U.S. President Donald Trump has said China will buy as much as $50 billion worth of agricultural goods every year within the next two years. However, Beijing still hasn’t confirmed any of those numbers yet.
A deputy ag minister quoted by a Chinese magazine last week says his country has no plans to change its grain import quota system. Politico says trade analysts point out that could make it extremely difficult for Beijing to meet U.S. demands. The other fact that makes many economists skeptical is the most U.S. agricultural products China has ever purchased was $26 billion back in 2012.
President Trump recently said on Twitter that he’ll be heading to Beijing to begin talks on Phase Two of an agreement, but a spokesperson for China’s Ministry of Commerce didn’t provide any additional details on potential talks.
The new year is fewer than 10 days old and already promising to hold new twists and turns for trade, particularly as policy debates, presidential politics and geopolitical issues heighten ahead of the November elections.
Here’s a quick review of movement that could impact sales of U.S. grains and related products, including distiller’s dried grains with solubles (DDGS) and ethanol, in 2020 and the years to come:
The U.S.-Mexico-Canada Agreement (USMCA) continues to move toward ratification in the U.S. Congress, having already been approved by Mexico and with Canada set to consider the agreement later in January. If these timelines hold, USMCA could be in force by spring, restoring certainty to the trade relationships with the closest and largest U.S. grains trading partners. In addition, the agreement will serve as a blueprint for future trade agreement negotiations.
A phase one agreement with China is expected to be signed on Jan. 15 and go into effect within 30 days. The agreement reportedly includes a commitment by China to purchase $40 billion to $50 billion in food and agricultural products over the next two years. Though details are yet to emerge, it is anticipated that China will exempt the current retaliatory tariffs and remove other trade-distorting tariffs as part of this package. Equally important, China agreed to provide structural reforms to remove major non-tariff barriers subject to monitoring, review and enforcement mechanisms.
On Jan. 1, the phase one trade agreement between the United States and Japan became effective, leveling the playing field for U.S. agricultural products competing there with products from the European Union (EU), Canada, Australia and New Zealand – all of which already enjoy trade preferences with Japan. The agreement will eliminate tariffs, enact meaningful tariff reductions or allow a specific quantity of imports at a lower duty for key U.S. ag products. A broader, phase two negotiation is expected to begin in April.
The United Kingdom‘s (UK) expected departure from the EU on Jan. 31 will tee up negotiations for a potential U.S.-UK free trade agreement. A deal with the world’s fifth largest economy would offer opportunities for free and fair trade, strengthen the transatlantic economic and strategic relationship and help promote economic growth in the European region. At the same time, the UK must determine what its future trading relationship with the EU will entail, particularly whether it wants to align itself more closely with EU or U.S. regulatory standards in areas ranging from agriculture to the environment.
Since failing to initiate formal trade negotiations over the last 18 months, the United States and EU have become entwined in numerous trade policy disputes, the most prominent involving a long-running World Trade Organization (WTO) fight over EU government support for Airbus and the EU’s counter-complaint against U.S. support for Boeing. Yet another dispute involves potential duties in retaliation for France’s new digital services tax. Whether these disputes – along with existing tariffs on aluminum and steel and threatened tariffs on autos – will move both sides to engage in a full-fledged bilateral free trade agreement remains to be seen. With a newly formed European Commission in place, EU Trade Commissioner Phil Hogan and U.S. Trade Representative Robert Lighthizer are expected to meet in mid-January.
The U.S. government continues to engage with the Indian government to revisit a wide range of policy issues, including prospects for DDGS and ethanol. Among the irritants stalling the process has been the cancellation of India’s preferential trade treatment, offered to developing countries on some goods and services, under the U.S. Generalized System of Preferences (GSP) program.
Finally, speculation continues about with which other countries the United States could embark on trade negotiations, including Vietnam, the Philippines, Taiwan, Brazil or a model trade agreement in Africa. Pending anti-dumping and countervailing duties allegations against the United States will be adjudicated in South America. And to help farmers and agribusiness stakeholders make sense of it all, the Council, National Corn Growers Association (NCGA) and 10 state corn organizations are hosting trade school workshops across the Midwest this winter.
Pre-Report trade. If the wheat is leading higher on the S&D Report the dollar will have a reaction. Trade might not be worried about the corn. bullish surprise in the report though could be the corn, seeing where we are at in harvest. Phase Two comes after elections. Phase one is on track for January 15th. Iran still being talked about. World Supply Demands with South America. Winter seeding for the wheat brought to the front of the classroom. USMCA. Wall Street Journal & the tide turning. Cattle market & waiting for the cash continues to be on the quiet side.
China…they are scrapping their ethanol program & what does that mean? GCI China talks of lifting duties on DDG’s. Ethanol mandate by 2020, was never bought into. Due to weather, the USDA report delayed until Friday along with the WASDE report. Political talk making national news, is the current issues with Iran having any effect on the markets? ASF hits again in Bulgaria. Consolidation in the cattle as they wait for the cash to fully develop.
Quiet grain trade, full trading week, coming out of holidays, focus turning towards taxes. China signing, USMCA talk. Political action, South America. Now into an election year. USDA report out on Friday. Corn & wheat lower, beans higher. Struggles in Australia & the effects on the U.S. markets. Strong start to the marketing week for cattle. Is there a chance for a pull back on cattle Tuesday?
An Associated Press report says there are still people on both sides of the Pacific Ocean who remain skeptical about the actual amount of farm goods that China committed to buy in the “Phase One” trade agreement with the U.S. Trade Representative Robert Lighthizer said the amount will total $40 billion a year.
However, President Trump says the total is actually “much more than $50 billion.” Is it realistic? Even in the best of times, exports to China has never been higher than $26 billion in any year. Beijing may be locked into contracts with other suppliers like Brazil and Argentina it lined up after the trade war broke out with the U.S. Chad Hart, an Ag Economist with Iowa State University, says, “History says we’ve never been close to that level. There’s no clear path to getting us there in one year.”
However, the skepticism actually works both ways. A trade specialist at the University of International Business in Beijing says the figure is $40 billion and he wonders if the U.S. can ensure the full supply of products to equal that value. At this point, farmers that talked to the AP say they’re hopeful but guarded in their expectations. Iowa farmer Jeff Jorgeson says, “At this point, we have to see more details.”
Back on December 10, Speaker of the House Nancy Pelosi announced that the White House and her chamber of Congress had reached an agreement on the U.S.-Mexico-Canada Trade Deal. While the National Farmers Union was happy to see an effort to update the old North American Free Trade Agreement, the group says that effort didn’t go far enough.
They’re calling on the Senate for improvements to the deal before the final passage. “The free trade framework established by NAFTA has dominated international trade deals for 2.5 decades, to the detriment of American workers,” says NFU President Roger Johnson. “It’s contributed to the movement of rural manufacturing jobs overseas, caused our national deficit to skyrocket, lowered wages, and eroded national sovereignty.”
Johnson says the deal doesn’t go far enough to specifically protect family farmers and the rural communities they live in. U.S. neighbors Canada and Mexico are the largest export markets for U.S. food and agricultural products, totaling more than $39.7 billion in 2018. A USDA report says those exports support over 325,000 jobs. Ag Secretary Sonny Perdue says the agreement is a big win for American workers, the economy, and farmers and ranchers.
USMCA. Higher grain numbers…did the Chinese numbers get faded out? WASDE report. Chinese production numbers corn & wheat were higher. Final USDA Crop Progress report for 2019. Dollar traded lower. Livestock…USDA cut in exports for beef & pork. Chinese hog heard is starting to rebuild. Cattle markets & weights.