Commodity market needs to see boats headed to China

To the relief of farmers, China and the U.S. have agreed and signed Phase One of a “multi-phase” trade deal. It remains to be seen whether this is a truce, a pause, or an easing of tensions, but farmers are encouraged. The Phase One deal is being met with high amounts of bipartisan criticism due to the commitments made by China to buy US$80 billion in American ag goods over the next two years.

Canadian farmers are also encouraged by the deal, based on the potential for a rally in the U.S. commodity futures.

One week into the deal, China has got off to a slow start for purchases. To the surprise of many the commodity market has slid, instead of gained. In a conversation with Shaun Haney, Chip Flory, the host of Agritalk, admits he is surprised by the soybean market slide this week.

“I did not anticipate soybeans being 25 to 35 cents lower since the deal was signed. A steady market would have been more in my wheelhouse as the market waits for boats to actually be loaded as those China orders were filled,” he says.

You can hear RealAg’s Shaun Haney on Agritalk with Chip Flory every Friday on Rural Radio 147 at 2 pm eastern

In order to get funds to the long side, Flory believes the skeptical commodity funds need to see the, “action of boats being loaded to head to China.”

The question has become which commodities they will buy to get to that US$80 billion number as a commodity list has been released, but does not include the amounts for those commodities.  This is not surprising as the two countries are attempting to avoid any WTO challenges.

Greg Doud, the chief ag negotiator with the U.S. Trade Representative, has told Flory on Agritalk that individual commodities have different implementation dates.

There is much focus on the “market competitiveness” of the text and whether that is a way for China to wiggle on the deal or rather a means to avoid WTO complaints.

Earlier this week China also doubled down on their demand requirements by saying that the purchase of US$40 billion in ag products out of the U.S. will not impact the purchase of products from other countries. For Canada, this is encouraging for crops such as wheat where Canada has had some success.

You can listen to Shaun Haney and Chip Flory discuss this timely topic by clicking play below:

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