You couldn’t ask for a week with more news. President Trump is one step closer to a full house vote on impeachment. The USMCA is finally going to get across the finish line. And, the China trade agreement we have been talking up for more than a year is getting done.
All of this should be causing prices to boom on the Chicago Board of Trade, right? We should be limit up corn and soybeans, with wheat along for the ride, right? Well, not quite.
Wait and see
Grain traders who have taken a “wait and see” attitude to prices as the trade deal has developed are still, well, waiting and seeing. The skeptics say they don’t have the details at hand, and nothing has been signed yet. They are right.
Market movers are coming together, but, in fact, for the week, March corn futures were up four and a quarter cents and January soybeans were up just 17-3/4 cents. Beans have gained 30 cents in the last two weeks, but that is hardy a strong rally. We bounced off the bottom, seemed to have the best news possible, and only gained what we sometimes see in a big day. So, what is really happening?
The President is close to being impeached by the House and bound over for trial by the Senate. While this is going on, equity markets continue to boom under the reality of the best economy of the last 50 years. It is hard to see any reaction in the grain markets.
The reality is that the Senate will laugh off the two articles of impeachment, which are, in fact, laughable. Show me some dead bodies, or at least some sort of crime, is the attitude.
Then, there is the USMCA. We have been told for over a year what a great thing this is, or at least how great it is to get rid of the NAFTA that preceded it. That previous agreement is now seen as an instrument to export jobs. The hype has been how important it is to farmers and union laborers, but now that it is being seriously put forward, it is hard to see direct impact on farming, except for some marginal effects of better export agreements on dairy products to Canada.
For farmers it is a continuation of free trade. For others it is a start of a more managed trade. (I have already told you more than I actually know about this.) What I do know is that it is not actually signed, and that the Mexicans are unhappy about some changes made by Democrats so that they could take credit for passage instead of blame for sitting on it while they did nothing but impeachment. Supposedly it will be signed, and soon.
Chinese trade agreement
That gets us to the Phase One of the Chinese trade agreement. The whole deal was supposed to take three months. We have been waiting for this to become fact some time in the next three weeks for the last year. Now we are still waiting for details, and for the pesky matter of actually signing what has become the first part of the agreement.
There is a theory that the Chinese are not willing to get the whole agreement done since they are waiting for a new president after the 2020 elections. I heard a worse theory yesterday from some talking head who said the whole agreement might take a decade. This is the Chinese we are dealing with here. We plan for two years, they plan for two centuries.
We announced the Phase One was done, they reluctantly agreed a couple of days later that we had a deal. They actually held a press conference, which must have been interesting for them. It was interesting for some Western reporters who actually though their questions would be answered. The most important were not.
Like, how much trade, and of what? The press conference did not reveal the answers. Ag markets sold off. Then, trade representative Robert Lighthizer announced that the Chinese had committed to buying ag goods of $16 billion more than our 2017 baseline of $24 billion, and would “try” to do another $5 billion.
Which Ag goods?
Since the agreement has not been signed, but only announced to beat the Dec. 15 deadline imposed by Trump, the market is waiting to see the details. Most interesting will be just how the heck do we come up with $40 to $45 billion in ag goods anyway?
Current speculation is that it would assume a return to ethanol exports, meat exports, a goodly pile of corn (which China does not currently buy from us), and maybe increased wheat supplies. Currently, small wheat exports are only of spring wheat. So, stay tuned.
But, be assured, that the combination of actual harvested quantities of grain in the January USDA report, revised export expectations because of agreed China business, and the bullish enthusiasm that the market may sustain once it believes the current good news, could combine for explosive market changes to come.
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