The day has finally arrived. No, I am not referring to the release of the Oscar nominations, and realistically I would not be able to identify who or what might be in line for the best picture or the award for likely to deliver the most impassioned acceptance speech anyway. Of course, I am speaking of the Phase One signing ceremony for the U.S./Chinese Trade Saga. Over 18-months in the making, with more than a few roadblocks and disruptions along the way, it would appear we will finally have the document that will usher in a promised “new era” of trade between the two nations. I understand that there will be over 200 invited guests attending the ceremony this morning as President Trump and Chinese Vice Premier Liu He sign the 86-page document, and you can be sure there will be plenty of campaign worthy photos snapped throughout.
The thing is, most of us are not even sure of what it contains. The information we received from “those in the know” refer to China purchasing an additional $200 billion of goods from the U.S. over the next couple of years. I assume within this will the $80 billion in manufactured goods, $50 billion in energy products, $35 billion in services and, of course, the $40 to $50 billion in farm goods. One of the reasons the break down in the various commodities are not being released is supposedly to keep markets from front-running the business. That said, President Trump is obviously so confident in the increased trade that last week he advised farmers to “Go buy larger tractors,” which I am sure warmed the hearts of executives at John Deere, Case IH, and Agco. Supposedly, there are penalty clauses within the agreement that would be enforceable if China did not live up to commitments.
Do not take me wrong, I am as glad as anyone to see this positive step taken, but if there is any irony in all of this, sources say that the agreement stops short of addressing issues concerning intellectual property practices or a pledge to rein in subsidies for state-owned companies, (think steel and aluminum) which were the core reasons to justify the onset of this costly trade war. According to Treasury Secretary Mnuchin, those will be taken up when Phase Two discussions begin.
Not sure if this was a goodwill gesture for the day, but the USDA did report a sale of 126,000 MT of bean to China this morning.
Without question, the wheat market has been one of the outstanding performers to the upside during the past few months and this morning, March futures reached up to test the summer of 2019 highs and in fact traded at the highest point for a March contract since August of 2018. At least part of the strength overnight can be attributed to a story from Russia that they want to limit January through June, non-tariff quota grain exports to 20 MMT. While the USDA only lowered world wheat ending stocks around 1.5 MMT on the latest supply/demand, there appears to be recognition that world supplies could contract more this year. Take note that we are pushing into what has been the upper range for the past several years and it would likely require fresh positive news to sustain this advance much longer.
