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More Positives Than Negatives for Ag Moving Into 2019
Happy New Year! I am writing this New Year’s Day, following a rough year for most farmers in spite of a good start to it, with prices rallying to last year’s highs in May on U.S. planting delays. That was followed by setback after setback throughout the year once the crop got planted, and the U.S. confronted China on the trade issues. China had been committing some trade sins for a while, and previous administrations had confronted them in similar ways, only to have promise after promise broken by the Chinese government.
This administration chose to attack Chinese trade sins with tariffs, and although not popular by either the American public or China, proved to be somewhat effective in getting China to the bargaining table. In fact, the ability to actually impact China directly through tariffs might be the only thing that works – words and diplomacy (more words) haven’t seemed to have any impact up to this point.
The only problem with tariffs per se is that the world, and world markets, don’t like them as it (according to textbooks) lowers economic output and consumer satisfaction in both countries, as trade is lowered overall. The past few months, the world has watched as stock markets in almost all countries suffer with large losses, with U.S. stock markets down especially hard to end 2018.
However, as much as stock markets have been hurt by the trade war recently, grains have actually performed a little better recently. With stocks lowered in both the U.S. and China, the argument goes, there is more pressure on President XI and Trump to actually get a trade agreement done. Therefore, the cost of not accomplishing their objectives by the self-imposed deadline of March 1 might be unacceptable to both parties.
Soybeans and grains are finding some support recently from positive news on trade negotiations, with President Trump tweeting Saturday, December 29, “Just had a long and very good call with President Xi of China. Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made!”
Shortly thereafter the Wall Street Journal quoted Pres. XI of China as saying, “China attaches great importance to the development of bilateral relations and appreciates the willingness of the U.S. side to develop cooperative and constructive bilateral relations.” Trump supposedly initiated the phone call, so does that mean the U.S. is more willing to compromise now to get an agreement done?
A team of U.S. trade officials, including Deputy Trade Representative Jeffrey Gerrish and Treasury Undersecretary David Malpass, is planning a trip to Beijing the week of January 7 for several days of talks. If those negotiations make progress, Chinese trade officials, led by Vice Premier Liu, will follow up with talks in Washington the following week or so, with U.S. Trade Representative Robert Lighthizer and U.S. Treasury Secretary Steven Mnuchin. So, both midlevel and high level talks are scheduled, at least in the initial stages of talks. The deadline for completing talks is March 1, with the tariff hike on $200 billion of Chinese imports from 10% to 25% scheduled to go into effect if talks are not successful.
Soybeans might ride higher on this news to start the new year, with resistance at the old December 1 gap higher an important target to watch. If we get through that level, soybeans may run back to the upper end of the recent trading band, which has a higher bias with higher highs and higher lows.
Recently, we’ve also had some good news for U.S. farmers on some adversity in Brazilian and Argentine weather, which up to December 15 was only leading to higher and higher crop estimates. South American weather is relatively decent, with rainfall forecast in most sectors the next seven days. But some dry areas have been developing (southern Argentina and eastern Brazil), and that is starting to reduce crop yield estimates in those areas. Overall, adverse weather in late December through February can be significant, and already estimates are being reduced in Brazil due to recent dryness in December, dryness being a relative term in a country where average annual rainfall is about 60 inches of rain.
So, as we end 2018, there seem to be more positive developments than negative in agriculture. But considering from where we are coming from late last summer and fall, we have a long way to go to get U.S. agriculture back in the black (profitable) again. Let’s hope that 2019 will indeed be a happy new year for agriculture, and the positive developments continue to occur!
Ray Grabanski can be reached at firstname.lastname@example.org.
Ray Grabanski is President of Progressive Ag Marketing, Inc., a top Ranked marketing firm in the country.
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