In this file:
· China disappointment Round 3
· There May Be No Going Back from the China Trade War
· American farmers say China can't meet its future demand for soybeans without the US
China disappointment Round 3
This weekend’s directives for state-owned companies to refrain from buying U.S. products is, no doubt, problematic.
Steve Meyer, National Hog Farmer
Aug 05, 2019
We can’t talk about pork industry economics today without acknowledging the debacle that befell lean hogs futures last week. How bad was it? Just the worst week in the history of hog futures. Every contract lost at least $8.075 and the December contract fell $14.85 per hundredweight or 19% from its previous weekly close on July 26. And there is no guarantee it doesn’t continue today. At this writing August and December are up some, while every other contract but May is down.
And all of this happened as USDA’s estimated cutout value gained 5.4% and cash hogs gained 5 to 7%, depending on which series you considered.
Tweets happened. At least that is the most obvious issue. President Trump’s imposition of 10% duties on another $300 billion of Chinese goods and the generally negative vibes of everything related to trade last week were either the spark that lit the fire or fuel that made the conflagration larger. We aren’t sure which. Add in growing sentiment among traders that a) China hasn’t really lost that many hogs or b) China won’t ever buy more from the U.S. or c) both and you have a situation where the first sign of selling set off an avalanche. Call it “China disappointment Round 3.” But this case of disappointment was far more acute than were Round 1 last fall and Round 2 in May through June.
We still believe China’s hog losses have been massive. Everyone that has been on the ground there supports that conclusion. Recent increases in China hog prices to near 20 renimbi/kg (and above that level in some areas) are the first signs that pre-emptive hog culling and declining frozen inventories are finally leading to some scarcity of pork products. China’s imports from the European Union, Canada (at least until the late June banning of Canadian product over falsified documentation) and Brazil have grown sharply. But China can’t buy all of the product in those countries and, even with tariffs on U.S. product, will have to buy significant quantities from the U.S. at some point.
U.S. shipments to China were up 180% from one year ago in June (product weight data from USDA-FAS) and are now up 23.8% year-to-date. Value increases for those time periods are +204% and +13.1%, respectively. Pork variety meat exports to China were up 30% year over year in June and are now down “only” 10.% year-to-date.
This weekend’s directives for state-owned companies to refrain from buying U.S. products is, no doubt, problematic. It remains to be seen if food needs will trump this nationalistic desire by the government of China. We use “nationalistic” here not as a pejorative term but simply as a statement of fact.
One thought: If you knew that your country was going to need large amounts of various products from a specific country, would you perhaps work on a plan to get the cost of those products lower before you really started buying them? There seems to me to be more than one way to perpetrate a great grain/soybean/pork/beef robbery – at least in theory. Did we see it last week?
The other longer-term issue is the situation with price reporting. Specifically, USDA has had a devil of a time publishing data in the Western Cornbelt reports in recent weeks due to its confidentiality rules. The unavailability of WCB prices is a huge problem for thousands of formula-based hogs that use various data as the base for producer price computations.
So what are the rules and why are they in place?
USDA developed the “3/70/20” rule shortly after mandatory price reporting began in 2001. It says USDA will publish price and quantity data only if:
There May Be No Going Back from the China Trade War
by Clinton Griffiths, AgWeb
Aug 05, 2019
Commodity markets are off to a turbulent start this week following the escalation in trade tensions between the U.S. and China. The Dow posted a more than 700 point drop, while many of the major grains and livestock markets started the day lower before ultimately seeing many contracts close in the green to end Monday.
During a recent interview with AgDay's Clinton Griffiths, Mark Gold of Top Third Ag Marketing said its getting to hard see any room for a deal to be done.
"There doesn't seem to be an incentive for the Chinese to do anything before the election," says Gold. "They seem to want to wait it out and hope that there's a Democrat that might give them a better deal."
Gold says whether that happens is anyone's guess at this point, but history tells him the tariffs strategy is a hard way to go.
"The fact of the matter is, we've tried these tariffs, we've tried embargoes, all other kinds of things to try to either punish people or to change the dynamics of a political situation," says Gold. "When [President] Carter put the embargo in place on the Russians, all we did was turn our biggest customer into one of our biggest competitors and I believe we're seeing the same thing."
Gold says China will still need soybeans, but he anticipates they'll either buy them from other places or grow them at home.
"There was a Chinese delegation in Argentina these past few days, looking to buy Argentinian meal, which they've never bought before," says Gold. "We're forcing the Chinese to look at other markets or grow their own soybeans and ultimately that hurts us here."
He echoes what many have said about bringing China into modern trade standards adding he understands what President Trump is trying to do. He's always just been a fan of free trade...
American farmers say China can't meet its future demand for soybeans without the US
Alexis Keenan, Yahoo Finance
August 5, 2019
U.S. soy farmers caught up in trade disputes between the U.S. and China that escalated over the weekend say they’re weathering decreased business from the globe’s largest soy importer. But these farmers remain confident China’s tough stance on trade will prove unsustainable.
Brazil, the world’s largest soy exporter, can’t independently produce enough soy for China’s swelling middle class, Darin Johnson, a soy farmer in Southern Minnesota, told Yahoo Finance. Over the past year, China has turned to soy producers in Brazil and Argentina, countries expected to increase exports during the next marketing year.
“There just isn't enough soy in the world to provide all of their needs,” said Johnson, who’s also secretary of the Minnesota Soybean Growers Association.
‘They can’t ... eliminate demand for U.S. soybeans’
This week, reports emerged that China had halted agriculture purchases by state-owned enterprises, and that privately run Chinese companies that had been granted waivers to buy soybeans had stopped doing so because of trade war fears. But this situation is untenable, according to representatives from various agriculture trade groups in the U.S.
“The fact of the matter is that the U.S. is the world's largest soybean producer, and the second largest exporter, after Brazil, and the world needs U.S. agricultural products,” said Owen Wagner, CEO of the North Carolina Soybean Association.
“What China has been able to accomplish, by putting tariffs on U.S. soybeans, is basically to put our soybeans on sale relative to Brazil,” he said. “But they can't effectively eliminate demand for U.S. soybeans.”
There’s another reason China’s ability to further retaliate against American soy producers is weakening, according to Wagner.
“They've done as close to as much damage as they can do within the context of this year,” Wagner told Yahoo Finance, explaining that China’s imports of American soy, down 75% to 80% from peak levels set in 2016-2017, and down as much as 98% in 2018, are close to bottoming out. China’s decreased reliance on American soy, he said, has led to a “reshuffling” of global trade flows that have seen U.S. soy farmers seeking alternative markets.
“What we've seen is the U.S. has been really successful in growing its exports to Europe,” he said. “They've been close to 10 million tons over the past year, and that's a level that hasn't been seen since the mid-1990s.” U.S. soybean exports to Mexico have also increased over the past two years, he said.
Swine fever means China needs less soy — for now ...
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