Time Is Ticking for U.S. and China to Make a Trade Deal
This week on January 30 and 31, the lead Chinese negotiator Liu and a team of a dozen negotiators will come to Washington to continue the trade negotiations with the Trump team led by U.S. Trade Representative Lighthizer and Treasury Secretary Mnuchin. Recall this whole process of a 90-day trade truce was started December 1 with the G20 meeting between President Trump and President Xi of China, who agreed to delay a U.S. scheduled increase in Chinese tariffs in exchange for Chinese purchases of U.S. grain, lower auto tariffs, and meetings to try to come to a permanent agreement.
The negotiations started off well, with China making all kinds of concessions/gestures to the U.S., including approving GMO varieties that had been pending. Midlevel meetings in early January also went well. But recently, there have been some snags in the relationship that may slow a potential agreement. It seems that U.S. demands for a change in Chinese business practices on intellectual property and state sponsored support for preferred, high-tech Chinese companies is a big part of that stumbling block.
The chances for a trade agreement of some kind may have been lowered by the U.S. decision yesterday to file criminal charges against Huawei and its chief finance officer; the charges were unsealed yesterday. That will likely upset the Chinese team who feels the company has been unfairly called out by the U.S. for punishment.
China seems ready to offer to purchase more ag and energy products and reduce the trade gap between the countries (as they always seem to offer). But they do NOT appear ready to offer any concessions on the intellectual property issues, state sponsored support of key industries, or any other reforms the U.S. has demanded. Additional U.S. tariffs on $200 billion of Chinese imports will increase 15% (from 10 to 25%) if no agreement is in place by March 1, so China has some extra incentive to work at least something out this week. If we don’t get closer to a trade agreement this week, there will only be 30 days left in the negotiations. Time is ticking away!
The importance of a Chinese/U.S. agreement on trade is hard to overstate, especially for agriculture. An agreement would mean not only the return of our top buyer (25 million acres of soybeans), but potentially additional purchases (including corn and wheat) to try to help lower the U.S. trade deficit with China. That gets ag export groups salivating, as the 1.4 billion people in China also have the fastest growing economy the world has ever seen (even though the 6.6% 2018 GDP growth was the slowest in 28 years). But with no agreement, that means potentially a loss of a 25-million-acre customer, and there is no one left in the world large enough to make up for that export loss. So with an agreement, ag turns into a bullish sector. Without it, we suffer at least a few more years with prices in the cellar.
South American weather forecasts dried out a bit again overnight, with southern Brazil now drier and even the northern half set to have below-normal precipitation the next seven days. Temps will be about normal in Brazil the next 14 days, and precipitation amounts will improve in the eight- to 14-day forecast. But even then, they still will be below normal in the southern third of Brazil. So, the forecast the next 14 days still suggests additional stress and yield loss in Brazil. In Argentina, weather forecasts are better with mostly normal precipitation and above-normal temps the next 14 days. So good crops will be the result in Argentina if that weather forecast continues.
The Russian ag minister once again is baffling wheat traders Tuesday with reductions of 0.5 mmt in export projections this year, and 3 mmt reductions in production next year (in spite of higher acreage). USDA will release “2 for 1” monthly reports February 8, both the January and February reports at the same time. Maybe that can jazz up the February report, which is typically one of the least important of the year. With January, including final 2018 corn and soybean yields (expected slight cuts), updated exports (what impact will Chinese soy purchases since December 1 have?) and winter wheat planted acreage (1-million-acre cut?), there actually could be something worth reading in these reports!
Ray Grabanski is president of Progressive Ag Marketing, Inc., a top-ranked marketing firm in the country.
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