Market optimism is being put to the test

As a refugee from the 60s, one anti-war slogan bounces around in my brain occasionally: “What if they gave a war and nobody came?”

There is a certain ironic ring to the saying. This morning the phrase I am trying out is this: “What if they gave a trade war and nobody came?”

The grain markets have been hanging on every nuance of news and rumor since the end of February when the U.S. and the Chinese got together on the sidelines of the G-20 meetings in Buenos Aires and agreed to agree, and agreed to agree by the first of March.

It didn’t happen

We have lived on rumors for more than three months now. Some of them have been exciting, like the idea that the Chinese would commit to $50 billion in ag trade per year, several times the current pace.

What the Chinese want

There has been a persistent rumor that the Chinese wanted corn, which we have not been selling them, and chicken, pork and wheat. Analysts have scrambled to come up with a combination of products that would have that much value.

By the end of February, the market was tired, and a little scared. Grain prices, especially corn prices, declined sharply as the trade enthusiasm waned.

We were told the Chinese president would come to Mar-A-Lago to sign, but not until the middle of March. Early last week we were told it might not be until April. The idea was that the underlings continue to meet, and when they finished the presidents of both countries would just get together for the formality of a signing ceremony.

Now comes the news/rumor (I can’t tell the difference anymore) that the meeting to sign won’t come until June. June! With that idea comes the fear that we won’t get a deal at all. I remain optimistic that the deal gets done, and feel that the longer it goes on, the better it may be for us.

My take is that the agricultural parts are only negotiation details. Both sides want to increase ag business. The big deal is not agricultural. We are hung up on the larger problem of intellectual property rights.

Intellectual property

By some estimates, the Chinese are stealing intellectual property from us at the rate of several hundred billion dollars a year. This is in the form of stolen patent rights on one hand, and in the form of trade secrets on the other.

It has been a practice to force any company starting up in China to share secrets with the Chinese. Recently, it was rumored that the Chinese were ready to outlaw the requirement for foreign companies to surrender trade and manufacturing secrets.

That was seen to be a huge jump forward in the negotiating process. Still, things drag on. We hear that the agreement is hung up on the ideal of enforcement. That is, we get all kinds of promises, but how do we penalize the Chinese if they don’t comply?

Promises are easy to make, and the U.S. has a long history of being taken advantage of by Asian nations. Just do a YouTube search for Clinton remarks about how the North Koreans were going to end their nuclear program!

We paid them to do it, they just kept plugging along. I think that the longer this deal takes, the more likely that we will have gotten more of what we wanted out of it. It is a sign that we did not cave to get something done.

The fact that President Trump walked away from the last Korean meeting may have convinced the Chinese that they can’t roll us.

Onto prices

So, what has happened to prices? May corn futures are at 3.71-3⁄4 this Tuesday morning. We had several highs in January and February just above and just below the 3.90 range. We broke to 3.61 on March 12.

A quick rebound got us as high as 3.751⁄2 yesterday, but we closed at 3.711⁄2. December futures had a similar pattern. We are at just under 3.95 this morning, but had a high of 4.041⁄4 Feb. 21. The awful low was on March 8 and 11, at 3.861⁄4.

November soybean futures were not as dramatic, but they also dipped before a recent recovery. We are trading at 9.371⁄4, but had a high of 9.691⁄4 the first of February. Another high, 9.63-1⁄4, was encouraging, but then we dropped to 9.221⁄4 on March 12.

Chicago wheat futures are bouncing off a 4.27 May low made on March 11. That comes after a drop of over $1.05 since early February. This Tuesday morning, we are back to 4.59 3⁄4, up three for the day so far.