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U.S. Turns Down Trade Talks with China

Published on Tuesday, January 22, 2019

"US turns down China offer of preparatory trade talks" was the rumor that shook the commodity markets on Tuesday as reported first by the Financial Times and then CNBC.  Two primary reasons for the rejection of talks were reported.  1)  Lack of progress on enforcement of intellectual property and 2) structural reforms to China's economy.  See below:

This report puts trade negotiations in a very interesting spot.  During the G20 Summit on December 1st, 2018 in Buenos Aires, Argentina, President Trump and Chinese President Xi Jinping agreed to maintain 10% tariffs on $200 billion worth of Chinese goods.  The goal was to provide negotiators enough time to come to an agreement and avert further tariffs.  Beginning March 1st, 2019 the freeze no longer applies, as tariffs rise to 25% on those $200 billion of goods.  The meeting with Chinese Vice Premier Liu He is still on as planned at the end of the month, however, many issues still remain unresolved as the time horizon draws to just over a month off.

Markets across the board were lower on Tuesday following the news.  The stock market lost over 400 points.  Corn declined 3 cents.  Milk dropped 4-19 cents/cwt.  Live & feeder cattle were down $1.40/cwt.  Soybean Meal weakened $2/ton.  Soybeans, our main agricultural export commodity into China, closed 7.5 cents/bu softer after being down 17 cents at one point.  The chart above shows our soybean export pace with China through the first 14 weeks of the marketing year.  While commodity prices softened here today, most markets have actually experienced a rise in price lately.  Corn has tested the highs over the past week.  Class III, 2nd half prices are up 10 cents/cwt, from the beginning of December, despite selling off 20 cents in the last 5 trading sessions.  Today, soybeans traded within 14 cents of the $9.71 recent high.  See below.               

While most commodities and even the stock market experienced a return to higher prices over the past week and a half, news released today shows just how vulnerable this market remains.  Soybean price action continues to serve as an example of why, at the very least, put options on unsold bushels are vital to grain producers.  We also recommend sales near $9.50/bu as we continue to carry an inventory of just under 1 billion bushels.  For dairymen, these price breaks serve as opportunity to lock in corn and soybean meal feed prices.  Thus far, $3.70 corn based off of the March board has supported our market.  $300-$315/ton meal prices have offered value.  Give us a call to sort through the market craziness and any strategies suitable for your operation.

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