Technically Speaking: Market Impacts of the Tariff Meeting
By Jerry Gulke, Top Producer, Market Strategy Columnist
via AgWeb - Dec 5, 2018
In last week’s column I mentioned that I would give it 65% odds an agreement or framework, 25% odds that a surprise deal will be done and 10% of a bust. The following are some bullets of the agreement/framework:
The U.S./China talks led to an agreement to hold U.S. tariffs in
place and not escalate for 90 days while further negotiations continue for a total
trade pact. Apparently the 90-day grace period started December 3 so that means
March 3 brings on another deadline.
China would start to buy U.S. grains/oilseeds energy, industrial
and other products. A China negotiating team is already scheduled to visit the
U.S. in mid-December. Details of the buying are being negotiated, but as
mentioned last week, the previous $60 billion of corn, ethanol, DDGs and soybeans
offered last May could be the blueprint.
China will put fentanyl on the controlled substance list to help
control production and export.
China agreed to immediately begin negotiations on structural
changes with respect to forced technology transfer, intellectual property
protection, non-tariff barriers, cyber intrusions and cyber theft.
From perspective on the China side of the meeting, nothing yet
confirmed except that there are no increases in U.S. tariffs and negotiations
continue? In fact, they said nothing in the state-run news about a 90-day grace
period with higher tariffs if no agreement? There was no report of reduced
tariffs or promises of bigger imports. There is still a 25% tariff on all U.S.
grain and oilseeds that will likely have to be removed before any trade takes
place. China news did report that an aim of the trade meeting was to remove all
tariffs? Trade there believes there was an agreement reached in principle but
cannot act in cash until there is an announcement removing China tariffs. Their
futures market was 1 to 2 pct lower as trade thinks the door to imports is
USDA Secretary Sonny Perdue said late Monday that while it's
still undetermined whether China will remove tariffs on U.S. soybean imports,
he expects them to resume buying U.S. soybeans by early January because of
limited supply from Brazil before their next crop. He expects negotiators over
the next few days to determine whether soy tariffs will be removed. The market
will anxiously be anticipating such a move.
The commerce department in China stated Tuesday afternoon that it
thought implementation within 90 days was doable.
President Trump has stated he got very good assurances from China
and the outcome of the negotiations will be very good for farmers.
The press/media/negative producers/pseudo analysts and general
doubters/haters continually find something wrong with day to day evolution of
the meeting. So, markets are going to trade up and down like they normally do,
but likely with increased volatility.
· Markets are basically put to bed (in storage) with the crops still in the field merely representing part of the ending stocks that won’t be used anyway other than being carried forward to 2019/20 marketing year.
Bottom Line: What is agreed to between two heads of state is one thing—then comes the grunt work of working out details of what is agreed in principle between those heads of state. Thus, it is a natural course of events to take a lot longer to accomplish a complex new trade environment (deal) that the media or individuals realize or want to believe. It is important to understand that there has been a change in market psychology.