October 14, 2019

Good Morning

The United States and China announced Friday afternoon that they have reached agreement on the framework from which their staff can draft Phase 1 of a trade deal. Drafting that agreement will take the next three to five weeks, but President Trump and President Xi may be able to sign the agreement when they meet at the APEC meeting next month. Some reports indicate that the agreement includes quotas scaling up to $40 to $50 billion per year of agricultural commodities, while other reports indicate that we will see China purchase a combined total of $40 to $50 billion of ag commodities over the next two years.

The United States will suspend implementation of an additional 5% tariff on $250 billion in Chinese good scheduled for Tuesday of this week, but there has been no agreement to suspend the tariffs we have scheduled to go into effect in December. Phase 1 also includes some agreement on currency and on intellectual property right, although much of the IP will be covered in phase 2.
Very few details are available and the markets have grown skeptical of Chinese promises in the past and will want to see proof of purchases and shipments.

Keep in mind that these details have yet to be confirmed by the Chinese media. Our own media is reporting this morning that Beijing is seeking the removal of Dec 15th tariff increase and asking for another round of meetings in late October to further discuss the details Phase 1. This has the banks taking a cautious approach to the all the news as there seems to be some confusion over whether or not this is a new demand that will prevent it signing the “Phase 1 Deal” unless it is removed!

In addition to trade talk cooling, the weather has taken a decidedly cooler tone as well. Saturday was colder than forecast with freezing temperatures proving more widespread across the Plains and western Midwest. The system brought a blizzard with over 2 feet of snow to parts of North Dakota (above). The 2-week outlook looks much more seasonal, allowing the snows to melt and soils eventually firm enough to get the harvest back rolling. Unfortunately we will have to wait until the November WASDE report before we get an idea on just how much damage the USDA feels was done by the storm.

Have a Safe Day!

Garry Gard