The news of a preliminary trade agreement between the U.S. and China has been met warmly by the grain markets, but uncertainty still remains in the minds of many traders.
After nearly two years of negotiations between the two countries, this first phase of a trade agreement has had both positive and negative effects, leaving traders and producers wary until the agreement is finalized.
“Optimism around the world of getting any kind of deal done got so low because of how many false starts we had,” Jerry Gidel of Midland Research said. “We had a lot of investors who were all selling beans and corn, and wheat was struggling to do anything. If we can really see something immediately happen, it could make things more dynamic.”
He said everyone is waiting for this deal to be on paper and signed or for big export sales to China before making any major moves.
China is expected to purchase $40 billion to $50 billion of U.S. agricultural goods annually for the next two years under this trade agreement, according to U.S. Trade Representative Robert Lighthizer. In 2017, China imported $24 billion in farm products, according to Reuters.
However, the $40-50 billion agreement does not specify how much of certain products the Chinese will be purchasing, and Gidel said one of the possible winners could be corn markets. He said the likelihood that China will buy corn directly from the U.S. is not very high, but ethanol might be the way around it.
“That’s where the corn demand is going to be positive going forward,” he said. “It can’t be all soybeans. The big unknowns are pork and ethanol. Those are the two things they might be able to ramp up to get to that $40 billion.”
Gidel said the major win for producers is the fact that the tariffs President Donald Trump threatened to put in place Dec. 15 did not go into effect.