There has been no shortage of news capable of pushing the grain markets one way or another in the past two weeks. It started with a USDA report, but also included the signing of a “phase one” trade deal with China and the Senate passage of the United States-Mexico-Canada Agreement last week.
The markets bounced all over.
“It was a Dr. Jekyll and Mr. Hyde thing,” says Iowa State University economist Chad Hart.
Hart says the market had already factored in the China and USMCA deals, so when they actually happened there was little to do but drop rather than climb.
“You buy the rumor, sell the fact,” Hart says.
The long-term impact of both the USMCA and China deals should be positive, Hart adds, but he says neither constitutes a reason for the market to skyrocket. The USMCA, he explains, is essentially a renewal of the North American Free Trade Agreement. Unless you are a dairy producer, there isn’t a lot new there except the certainty that a deal is done.
In essence, Hart says, it’s difficult to give the Trump administration credit for solving a problem that it caused (the trade dispute with Canada and Mexico).
The China situation is different. The phase one deal is good news, but it is different than most trade agreements in that most of it isn’t about reducing barriers (although there is some language included regarding items such as specific processing facilities that are now to be accepted by China), he says.
Instead, it is setting dollar figures. That is good for both countries, Hart says, but it also means the U.S. doesn’t know what commodities China will want to buy or when. It is assumed that the impact of the swine flu will mean China will want to buy more pork and other protein products than in the past. Those items are high-dollar items.
Hart says it is likely the China deal will mean more volatility in the next year, and farmers should take that into account when making any marketing plans.