China, China, China is the market’s focus, analyst says

USDA keeps kicking the demand can down the road, despite China deal.

Once again, this week the focus is on China.

Our 25-million-acre customer from the past has promised, via phase one of a trade agreement, to become a 35-million-acre customer in 2020, and even bigger in 2021. Yet, the market still acts like China is a 15-million-acre customer like it was in 2019.

Read More: China to significantly increase U.S. soybean imports after phase 1 trade deal

Wednesday, the U.S. and China will sign the phase one agreement, and at some point the trade will need to digest just what that means for the market.  

Meanwhile, USDA has not changed anything demand related, either, due to the trade agreement – kicking the can further down the road as well at least to the February report. Does that mean we get the last MFP Trump money payment in January?

U.S. stocks continue to rally so far this year, running to new all-time highs in the S&P and Nasdaq as stocks are on a huge run higher. This is not a short-term trend, as we’ve rallied since the great break in 2008-09. In fact, in the most recent decade (from 2010 to 2020), we nearly tripled the stock market. So it has been a historic run indeed. 

In Pro Ag’s opinion, this could last another decade as well with similar rallies in terms of gain. So, the U.S. stock market is alive and well, with the U.S. economy zinging along under an extremely profitable period. If we had known that electing a businessman instead of a politician as president would be this successful, we would have had a businessman all the time the last 50 years!  If only we could get rid of the professional politicking, things could really be smooth.

Read More: Grassley says he will blow the whistle if Chinese backslide on trade deal

South American weather continues to offer some adversity, with below-normal precip the next seven days in Argentina and Brazil. 

Temps are more concerning in Argentina, with above-normal temps forecast while Brazil is more normal. Early harvest in far northern Brazil is beginning, with progress just slightly behind normal in Matto Grasso (about 2% harvested). 

Brazil is a tropical nation in the north, with high temps above 70°F. almost all the time. Rainfall is also high, so the planting season is virtually all year long – IF you can catch the rains right when the crops need it. 

There are problems in SAM this year, with Argentina still somewhat dry as well as central/eastern Brazil, so it will be important for the crop to have intermittent rainfall in the next 30 to 60 days.    

China and the U.S. are playing nice again, with the U.S. dropping the “currency manipulator” designation Monday, January 13 on China just two days before signing the phase 1 trade agreement.  Both sides seem somewhat unhappy at times with the agreement, so it’s probably a fair agreement
between both sides. The U.S. seems more anxious to get going on phase 2 negotiations than China, meaning perhaps it has more to gain?

While the market wants to minimize the impact of the China trade agreement, it also seems to quietly rise almost every day due to the agreement.  Perhaps it should, as it is probably the most positive development in at least two years (and maybe even six years) for agriculture.  

Yet, like all markets, they seem very distrustful of governments – and for good reason. Historically, markets work despite government, not because of government. It’s when governments get out of the way that markets work best.

USDA’s January report kind of kicked the can down the road, including no revisions in demand in 2020 for the Chinese phase 1 agreement, which will be signed Wednesday. 

In fact, USDA cut corn exports by 75 mb Friday – even though they may have to raise it back up 75 mb for the Chinese agreement. No hike in soybean demand, either, and it surprised the market by raising corn yields 1 bu and soybeans 0.5 bu/acre. It cut planted and harvested acreage, though, almost offsetting the yield hike. But no allowance was made for unharvested corn and soybeans; in a note it indicated it did nothing with it but assume it was already harvested. It may need to resurvey at a later date.   

Interesting! USDA was very aggressive in cutting demand with the tariff implementation 18 months ago. But now that a trade agreement with China has been forged, there is no change in demand?


Ray can be reached at raygrabanski@progressiveag.com.  
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Ray is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country. 

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