At the start of 2019, the U.S.-China trade war was in full swing and the United States-Mexico-Canada Trade Agreement was still up in the air. Now, as 2020 begins, producers and marketers watching trade issues can start to breathe a sigh of relief.
USMCA is working its way through Congress, and the first phase of a China agreement is being finalized, meaning relationships with some of the United States’ most important agricultural export markets are close to being repaired.
That has analysts feeling a little more optimistic going into the New Year when looking at the grain markets.
“I think with the less threatening trade protectionism, it should give the dollar reason to break back down again,” Mike Zuzolo of Global Commodity Analytics said. “As long as we stay free and clear of a fresh threat to global demand, I would look for a much better potential for prices.”
John Payne, market analyst with Daniels Trading, agreed that the recent strength of the U.S. dollar is a roadblock to commodity prices in 2020. He said it puts commodity prices in a “different dynamic” right now than they were in 2007 to 2012.
In those years, the U.S. dollar was trading lower, around the 80s, which led to higher commodity prices. Now, the dollar is up near 100, and foreign markets haven’t been able to compete well enough with the dollar to support commodities.
“The rest of the world is in shambles to a certain degree,” Payne said “The only reason why we haven't seen crises elsewhere is because we’ve got low interest rates globally so there's really no growth that we're seeing what's really going to push the market.”
He said markets need a “major driver of growth” for producers to see prices reach $8 corn again, but he isn’t sure where it is going to come from.
Some growth may come from demand, as Zuzolo discussed farmers needing to be prepared for a “demand-led” market.
“Be ready to give prices maybe more upside potential in 2020 and be ready to lock in good profit,” Zuzolo said.
However, he cautioned farmers to not be as aggressive as they might be on rallies, as the current friendly outlook projects for higher prices.
Iowa State economist Chad Hart also noted that just because trade deals are moving forward, it doesn’t necessarily mean all the business the United States was accustomed to previously will come back.
“That’s what we need to separate here: where are the potentials for growth versus where are we just creating agreements that help stabilize what we already have,” Hart said. “I would argue USMCA does the latter, it’s all about stability. The deal with China is trying to get us back to at least where we were if not grow beyond that.”
Payne said the early 2020 export sales will be important to watch, as the markets get a gauge on how these trade deals will affect things.
“I think they're pretty confident that things are going to happen here,” Payne said. “So you know, from a trading perspective, everybody's got to be their own kind of man: Do you believe it or not, do you have faith in it or not? If you're waiting for proof, you're probably going to see the price go up before you buy.”
Hart noted he is also very interested in what 2020 looks like domestically in terms how many acres are planted in the U.S. After a year that saw many farmers take prevent plant due to flooding and poor conditions, how much of that land is able to come back into production?
Those weather impacts are important to producers, as it will affect their bottom line. However, the markets have started becoming wary about when to adjust prices based on weather. Hart said to expect that trend to continue in 2020.
“It wasn't until (May 2019) that we really started to see the markets price weather problems into the marketplace,” Hart said. “In 2019, it took a while for the market to price these weather problems in, and I think that’s because if you look back over the past six, seven years, what farmers have proven over and over again … is they can produce some really large crops.”