Are Trade Talks Just Talk?

USFR RT 1 10/19/19
US and China square off in trade dispute ( MGN )

While the market is weary of U.S.-China trade talk, two economists believe China’s sentiment is changing. Ironically, they point to two recent communications as evidence.

China brought a large cohort to Washington, D.C.-based trade talks, surprising many U.S. officials, said Arlan Suderman of INTL FCStone on U.S. Farm Report. Meanwhile, Chinese state-run media was publicizing the benefits of a U.S.-China trade deal.

“When China came with 100 negotiators, that means if anything came up they wanted to have the right person there,” Suderman said.

Dan O’Brien of Kansas State University said China’s willingness to cooperate may be due to need.

“The Chinese economy is not doing sterling on its own,” O’Brien said. 

However, while Suderman and O'Brien said they believe recent trade talks are evidence of action, the market is more cautious.

China’s recent pork purchase of 351,000 metric tons was 1.2 times the weekly U.S. hog slaughter rate, but U.S. pork prices were slow to respond, Suderman said.

“I think market skepticism is a big issue,” Suderman said. “The word in the industry was that we were probably accumulating several weeks’ worth of sales that they already knew were coming and were priced in already.”

O’Brien added a wild planting year and reporting controversies add skepticism for crop farmers. While phase one and two of the trade deals have been discussed, nothing has been signed.

“We’re just so far out of the norm in terms of the year that we’re seeing,” O’Brien said. “Until we actually see hard numbers, I don’t know that we’ll see the markets respond well.”

Suderman said the market would like to see a purchase of 30 million metric tons, a goal depending on two key factors outside of trade talks.

“It depends where the final size of this crop is going to be,” Suderman said. “The key, though is what demand is going to be with African swine fever.”

If African swine fever lowers soybean demand for U.S. soybeans, Brazil will need to lower prices to reach non-China markets, which could lower prices worldwide, Suderman said.

O’Brien added China is shifting some production from corn to soybeans.

"What are the unintended consequences of China not having as much corn?" O'Brien asked.

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