Skip to main content

State Of The Trade War

Categories

It was 9 months ago when China first muttered the words “soybeans” and “tariff” in the same sentence. Since that fateful June day, fundamentals have felt like they were second fiddle to Twitter opinions and false headlines about progress.

Whether you are on the farm, commercial, export, or processing side of this battle one thing is for sure — it hasn’t been fun for any party involved. Agriculture has often been the puppet for negotiations with China; however, this year reached a new level when we called our biggest export customer into question. This trade war is unfortunately about Intellectual Property and is truly ignorant to any outcome happening on the agriculture sector.

When you talk to commodity analysts across the globe the only thing that is for certain is that this trade war will expedite China’s desire to secure its own commodities going forward. They will consistently be working to source more land and guarantee bushels for itself. That is a process they have been working on for 30 years already, but threatening tactics from the US have encouraged them to ramp up the process.

While historically China has made land grabs in places like Brazil, Africa, and Australia, we are seeing new competition come from the shadows. This past year, for the first time in history, we saw Russia look to pass a few million hectares in Eastern Russia to China for crop production. This is a scary thought as the potential ground to add back into production in the former Soviet Union could be our biggest threat going forward. When fighting a trade and political war with both of those countries we may be ignoring the old phase from war that could come back to bite us: “The enemy of my enemy is my friend.” A renewed relationship between those two powerhouses could be the most negative outcome for the United States. A rapid resolution to this trade war is necessary to keep that bond from growing.

While this doesn’t paint the best outlook from a 30,000 foot view of the trade war, we are optimistic the US will get a deal done with China in 2019. The downside is that the timing may be anyone’s guess. Early reports of great optimism for March’s meeting between the US/China are giving way to ‘maybe June’. The financial repercussions aren’t going unnoticed in either country. The GDP growth of China is the lowest in a decade as job growth is sputtering across different US sectors. Both countries need each other to help feed our biggest industries.

The markets’ effects are being felt through every sector. FCMs in Chicago are saying volumes are off as everyone is afraid of hedging, selling, and protecting prices. Don’t be afraid to take profits when the opportunities present themselves in this unprecedented situation. As we turn the corner into 2019 production we expect volatility to return and with that we will be helping our producers secure profits when the markets provide the opportunity.

For now, our hopes rest with Branstad, Mnuchin, and Lightizer as they work to navigate the spider web that is the geopolitical situation between the US and China. Cross your fingers but don’t hold your breath as we may be out of oxygen by the time there is ‘ink on paper’ for this deal. We are hoping the same for export intentions — a 2019 with dismal US exports to China starts cementing too many new relationships for their buyers elsewhere.