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The U.S. and China finally signed Phase I trade deal for the purchase of $80 billion of ag goods over the next two years. However, the bulls were not impressed as there are a lot of unanswered questions, namely the breakdown of the commodities. Thoughts are that corn will be a major beneficiary in the agreement. However, China said earlier that they will not exceed their import quota for corn this year. Corn could certainly use a boost as the U.S.’s share of global exports has fallen from 41.8 percent to 27.2 percent since 2017. Last week, the USDA lowered their export estimate 75 MB to 1.775 BB. Since late November, the pace of shipments has fallen 18.9 percent with cumulative shipments 53 percent below a year ago. In the meantime, expectations are that exports will improve from the trade deal. We just need to see some business.
For weeks, the bulls were encouraged that the trade agreement with China would generate a surge in U.S. soybean exports. However, details were lacking at the signing leaving many questions still unanswered. Will China forego their relationship with Brazil and other suppliers? Can China live up to the agreement? Will they? What if Brazil is cheaper for soybeans? Will China renege if President Trump is not re-elected? What happens if a liberal administration is in power in 2024? Another aspect, China has a history of not fulfilling their promises. In the meantime, the pace of shipments to China has fallen since late November. With harvest of early varieties of Brazilian soybeans just around the corner, they may choose to hit the pause button with U.S. for a while. Be aware that soybean exports have fallen 35.5 percent since November. The norm is for a decline of 60-80 percent through the end of the marketing year.
Wheat has been underpinned from optimism that U.S. plantings of the winter crop is the smallest since 1909 and reports that Russia will limit their exports this year. This is overshadowing record global stockpiles and projections for an increase in EU and Ukraine exports. Traders are hopeful that wheat will be a beneficiary in the trade agreement with China. However, they remain in the dark as details are lacking.
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