The United States and China recently agreed to a 90-day truce.
U.S. President Donald Trump agreed to hold off on imposing additional tariffs on $200 billion of Chinese goods. China’s President Xi Jinping agreed to increase the country’s purchases of United States agricultural, energy and industrial goods.
The grains market reacted bullishly to the news, but what does this means for United States agricultural products long-term?
AUDIO: Jim McCormick, Allendale
United States grains market surged on Sunday after receiving positive news out of Buenos Aires, Argentina. The excitement has since died down, as there is some confusion about the terms agreed too. Jim McCormick, senior advisor with Allendale, shares the most recent concerns on the trade front.
“There is some confusion as when they might buy and how much they will buy. Will it be a one time, good faith gesture or is it a true change in philosophy from the Chinese? That’s got the market a little muddied, and we’re jumping around at this point because of that,” McCormick said.
While all parties try to better understand the situation, McCormick encourages producers to remain optimistic. He brings light to the fact that “the United States and China are talking as opposed to tweeting and threatening to ratchet up the rhetoric.”
However, McCormick cautions “this (announcement) is not a game changer.”
“The latest estimate is China might buy 10 million metric tonnes of beans,” McCormick said. “A 10 million metric tonne (purchase) is an impressive buy on the face and the market, I think, will react positively. But the fact of the matter is, China bought almost 35 million metric tonnes of beans from us last year. If they only buy 10 (mmt), we’re still going to have a massive oversupply in the United States.”
United States export shipments are down 42-percent from last year. The export window is nearing its close, all while the Brazilian harvest quickly approaches. McCormick fears the South American harvest will only further impede United States export opportunities.
“Unfortunately, this has drug on so long that by the time China looks like they’re going to be importing grain again, aggressively, the Brazilian harvest is going to be coming on. The early harvest is going to come incredibly early, and that’s going to put direct competition on the United States. If you look at the price of beans in the U.S. and price of beans in out of Brazil, the Chinese still may not economically find reason to buy our beans.”
McCormick believes the next step is for both governments to reach a consensus, lowering the trade rhetoric and tariffs.