Dollar with corn and soybeans

The Aug. 25 weekend was busy in regards to trade headlines.

The United States and Japan agreed in principle on a trade deal, but questions still remain about progress with China. In a tweet on Monday, U.S. President Donald Trump said talks are continuing with China, three days after saying the U.S. would be “far better off without them” in a tweet Aug. 23.

These trade developments have sent the U.S. dollar and the stock market lower, and Mike Zuzolo of Global Commodity Analytics said if there are no new conversations between the U.S. and China soon he is concerned about the longer-term effects.

The real problem, Zuzolo said, is potential tariffs that could be put in place on Dec. 15 if no agreement is reached. He called that the “nuclear button.”

“Then you are back into a 1930s historic economic cold war,” he said, referring to the Smoot-Hawley Tariff Act that raised tariffs by 20% in 1930.

“If both sides move forward with those Dec. 15 tariffs, that would put us back to historical context. In my opinion, it would be next to impossible to unwind or turn down the negative impacts economically of what would happen to the global economy going into 2020.”

Any positive trade news may take away from some of the bearish tone to the market for the time being, but conditions are still worsening, Zuzolo said.

Domestically, Zuzolo said the current price-point of corn and soybeans is a good guess as to where the market will be once combines get rolling for some farmers.

“I think we are at where we think we’ll be,” he said, noting that the two completed crop tours, Pro Farmer and DTN, were closely aligned in yield projections, both around 6 bushels per acre below the USDA guess for corn.

Zuzolo said he doesn’t expect the USDA to alter its numbers.

“It would be nice for the USDA to acknowledge both lower acres and lower yield,” he said. “But with the track record and the sheer fact the supply bull is like a baby with an oven — he’s been burned enough that he won’t go back near the oven. The expectations are so low the USDA will acknowledge a lower supply, in my mind, that I’m telling people to plan for them not to do anything until January.”

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