It appears that the U.S. and China have come to a trade agreement. "Phase One" helped avoid a Dec. 15 deadline where the U.S. would implement new tariffs on China and moves the two sides closer together.

The major takeaway for agricultural markets is a huge boost in export expectations over the next two years from the U.S. to China. According to U.S. officials, exports of all agricultural products will rise to 40 billion to 50 billion dollars in 2020 and 2021. Initial reactions were for a big rally for markets, but the rally was not sustained all week. The reason is the dubious doubling (or more) of exports from pre-trade war levels.

Before the trade war began with the U.S. slapping tariffs on Chinese goods, export values were around $24 billion (in 2017). Roughly half of that was from soybean exports. Other products included lumber, cotton, wheat and a variety of other products. China has repeatedly avoided commitments to specific volumes of U.S. soybean imports. Instead, the market dynamics and demand will dictate their purchases. To this day, officials from China have not confirmed or denied the $40 billion to $50 billion figure reported by U.S. officials. Additionally, export channels have shifted to South America. Both Brazil and Argentina are shipping more soybeans and will soon be shipping soybean meal, too. It will be difficult to unwind those new trade channels, even under this new agreement.

In the end, perceptions of the trade agreement are mixed. There is some optimism in the agricultural community for increased demand from what has been a very tough year and a half. But few truly believe that the increase reported will come to fruition. For perspective, in 2017 the total value of all corn, wheat and soybean imports to all destinations was just $36 billion. To boost output of all products to meet this expected rising Chinese demand would be difficult, if possible at all.

Wheat

Wheat markets firmed up this week. Some of the support was a spillover from the other grain markets. But the bigger support came from Argentina. President Alberto Fernandez recently took office and raised export taxes on wheat, corn and soybeans. Wheat taxes rose from 12% to 15%. Simple economics, but this points to higher prices out of Argentina making wheat sourced from there more expensive. Higher priced wheat will shift demand away from Argentina to other sources, leading the market higher.

Big picture, the world is still well supplied from the 2019-20 crop. However, this news along with poor crops in Australia and reduced planted area in Europe for 2020-21, and the markets had a good rally.

Durum

Durum prices backed off modestly. There has been little excitement for durum prices since the move earlier in the fall off of recent lows.

Canola

Strength in the canola market is partly due to overall strength for vegetable oils. Soybean oil is rallying on trade news. Palm oil prices are firmer on tighter supplies in Malaysia. But not all of the support can be attributed to other oils. The canola crop was not fully harvested, and this is also keeping prices supported.

Pulses

There has been little excitement in the pulse markets to report. Heading into the Christmas and New Year holidays, there is not much news to drive prices.