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Trade deals, coronavirus keep markets uncertain

By Doug Tenney, Leist Mercantile

President Trump signed the USMCA or U.S., Mexico, and Canada Agreement. It has now been passed by the U.S. and Mexico, Canada has yet to ratify this agreement. The USMAC replaces NAFTA, which was a great agreement from the Clinton administration back in the 1990s. Some are calling it NAFTA 2.0. The new trade agreement replaces the 25-year NAFTA agreement. It should give the U.S. more access into those markets. Early indications suggest it will result in more automotive production in the U.S. In addition, this agreement should be beneficial for U.S. dairy farmers. Mexico, from an agricultural perspective, has been in the news in the past two months as they have purchased U.S. corn on multiple occasions.

The Phase One trade deal was signed last month by the U.S. and China. It calls for China to purchase 40 billion dollars in U.S. agricultural goods in each of the next two years. It is obvious trade deals were a big deal in January with both being signed. The third week of January China purchased three to seven cargoes of U.S. corn originating from the Pacific NW. That same day March CBOT corn was up 13.75 cents as it erased the 12-cent decline seen the previous day.

Unfortunately for U.S. agricultural producers, another unknown came out of nowhere as the Coronavirus has caused illness and death in China. It becomes a big deal to U.S. agricultural producers as some have already begun to question if China will indeed be able to purchase the $40 billion of U.S. agricultural goods it promised to buy with last month’s signing of Phase One. Other reports raise the potential of the Coronavirus slowing the Chinese economy from its present pace of 6% growth to 5%. This slowing could easily stifle demand for weeks or even months. The World Health Organization (WHO) late last month called the virus a “global health emergency.” Headlines the first few days of February suggest the flu is actually more deadly than the Coronavirus. Time will tell.

There are concerns of the numbers China publishes on the Coronavirus. Some are calling it much worse than reported. Nine deaths were early reported from the Coronavirus in China. Those numbers doubled four times in 9 days or less. Anytime there is uncertainty and the unknown is hugely increased in a very short amount of time, it affects trade in many sectors. Grain price gyrations are no different.

U.S. corn export sales reached 48.5 million bushels late last month, exceeding the high end of trade projections. Corn export sales exceeded those of soybeans, breaking the trend of recent months. The last week of January, U.S. corn export values are the world’s cheapest in April.

Traders appear most anxious to see China’s purchase of U.S. soybeans continue at a consistent, frequent pace. China trade is indeed a big deal. China’s soybean purchases at the end of January accounted for 43% of total U.S. soybean sales for the current marketing year. News and trade activity from China is often non-existent with the Chinese New Year celebration during the last week of January. The rare exception is the Coronavirus. With U.S. agriculture a global affair, world events at inception may seem miniscule, are often much more than that.

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