Alex Norton, Beeson Inc.
Eighteen months ago, if you had asked any farmer, broker or buyer of grains and oilseeds what soybean prices would do on the day of a signed trade agreement between the U.S. and China (where the latter agreed to increase buys of farm products in a huge way), one could predict "up limit" as the answer with near certainty. Ask the same question a year ago, or even six months ago, and the answer is the same. But soybean prices were down over a dime on Jan. 15 as President Donald Trump and top Chinese officials met in Washington to sign the first phase of the agreement.
China and the U.S. are set to sign the phase one trade agreement next week. Officials from China are coming to the U.S. to begin mending the relationship by signing the deal. However, details on the agreement are unclear at this time. The U.S. has announced that China will be importing $40 billion to $50 billion of agricultural products this year and next. But there are real doubts about the viability of that plan.
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.
Largely overshadowed by the drafting of articles of impeachment against U.S. President Trump, the U.S. House of Representatives also finalized the U.S.-Mexico-Canada Agreement. This is an updated version of the 1994 North American Free Trade Agreement that has provisions for cyber commerce, pharmaceutical drug patents as well as labor standards and automobile production. For traders and producers alike, this move will help alleviate fears of uncertainty in the years ahead as many products are traded across the three countries. Wheat
Commodity markets have an interesting pattern to close the calendar year. Typically, markets have a lot of excitement and volatility prior to Thanksgiving. There is harvest wrapping up, South American market data to digest, and the beginning of the major export season. Then the holiday week typically has little movement as market participants are less engaged and focused on travel, family, and eating too much.
Arctic conditions across the U.S. brought record-cold temperatures and raised some important crop issues. Winter wheat that has been planted in the Central Plains was vulnerable to the cold as adequate snow protection was not in place. There were some initial concerns for the corn and soybean crops that have not yet been harvested, but those seem largely to have passed. But one big development with the extremely cold weather is the domestic sugar situation.
Many crops are done with harvest, but two big ones are still incomplete. Corn and soybean harvest in the U.S. have been delayed from the start but are now in the final weeks. The U.S. Department of Agriculture reports progress weekly, and showed that the soybean crop was 75% complete while corn is 52% complete. Both of these are lagging the normal pace. At this date, soybean harvest is usually about 80% done and corn is usually around 75% done. Things have sped up in the last week with weather conditions drying out.
Crops have had a tumultuous season in the U.S. this year. Starting with late planting of the corn and soybean crops, issues have continually come up that have shifted expectations for major crops.
Agricultural commodity markets tend to focus on the supply side during the growing and harvest seasons. It is only natural for traders to focus on the weather and production prospects that change week-by-week and day-by-day. Focus on demand tends to come after harvest when production is more known and the daily weather forecasts are less critical for supplies. And even though we are not past harvest of all crops and production of crops is far from known, we have to be aware of what is going on with demand to see forward trends for pricing based on expected ending stocks.
If markets could have a weekly theme, last week's would be "Deals." The week of Oct. 7 ended with an announcement of the first phase of a trade deal between the U.S. and China. The trade war has been intensifying for over a year, and the news was initially met with a rally in both the stock market and agricultural commodity market. Claims that China would be buying somewhere between $40 billion and $50 billion of U.S. agricultural products was quite bullish.