The United States is a country like no other, but the challenges of remaining free, with an innovative capitalist spirit, where individual liberties and democracy reign supreme requires ongoing attention and sacrifice. The global, especially Chinese, retaliatory tariffs on the U.S. agricultural export sector have become increasingly burdensome with price trends more negative than positive.
Global leaders, especially the U.S. and China, are redefining the world’s economic, technological, financial, and military global leadership hierarchy. If China can meet their goals of global technological supremacy in six years and financial supremacy in 16 years, they will have a high probability of achieving global military supremacy before the turn of the century. The outcome of today’s ongoing global and regional supremacy battles will largely define the future global balance between open and closed societies.
U.S. agriculture paying heavy price
Since March 2018, fiscal, monetary and trade policy disputes, especially between the U.S. and China, have diminished the U.S. agricultural sector’s trade outlook and may significantly change future economic, political, trade, and military alliances for decades to come.
President Trump, in remarks to the 74th Session of the United Nations General Assembly on September 25, 2019 said: “The most important difference in America’s new approach on trade concerns our relationship with China. In 2001, China was admitted to the World Trade Organization. Our leaders then argued that this decision would compel China to liberalize its economy and strengthen protections to provide things that were acceptable to us, and for private property and for the rule of law. Two decades later, this theory has been tested and proven completely wrong.
Not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers, and theft of intellectual property and also trade secrets on a grand scale.”
Agricultural sectors outlook
FY2019 (October 1, 2018 to September 30, 2019) total U.S. agricultural exports of $134 billion are projected down 6.2 percent from $143.4 billion in FY2018. US-China trade disputes show China’s FY 2018 imports of U.S. agricultural products at $16 billion and forecast to decline to $7.3 billion in FY2019. The impact on our U.S. agricultural trade surplus is significant with the current FY2019 U.S. agricultural trade surplus projected to be the lowest since 2006.
Congressional Research Service reports
China’s imports of agricultural products rose, in nominal terms, from $117 billion in 2014 to $127 billion in calendar year 2018. The share from the United States declined from 24 percent in 2014 to 12 percent in 2018.
In 2014, the United States was the largest source of Chinese agricultural imports, accounting for nearly a quarter, or $28 billion, of China’s total imports. Since 2017, Brazil overtook the United States as China’s largest agricultural supplier. Since the imposition of the retaliatory tariffs on U.S. imports in 2018, U.S. agricultural shipments to China declined to $15 billion as overall Chinese imports increased to $127 billion.
In 2016, when China’s total agricultural imports were $105 billion—the lowest point between 2014 and 2018—U.S. market share was 21 percent. In 2018, when China’s total agricultural imports were at $127 billion, U.S. market share was 12 percent. During the same period, Brazil’s market share grew from 18 percent in 2016 to 26 percent in 2018.
In 2018, the following countries increased their exports to China:
- Brazil increased its shipments of soybeans, cotton, tobacco, pork, and certain oilseeds.
- Australia increased its shipments of cotton, sorghum, pulses, fruit and nuts, dairy, and hides and skins.
- Canada increased its shipments of feed and fodder products, hides and skins, and wheat.
- New Zealand increased its shipments of dairy and hides and skins.
- Thailand increased its shipments of fruit, nuts, and starches and malt.
- Indonesia increased its shipments of fats and oils.
- Other countries—such as Russia, Ukraine, and countries from Central Asia, South and Southeast Asia, and Africa—increased their exports of food and agricultural products to China during 2018 compared with 2017.
- China’s wheat imports from Kazakhstan grew 34 percent, and corn imports from Ukraine rose 20 percent.
Two key CRS concerns we all share
First, lower U.S. exports combined with abundant domestic and international supplies of grains and oilseeds suggest a fifth straight year of relatively weak U.S. agricultural commodity prices in 2019.
Second, in the long run, a shift in trade patterns can become permanent if trade disruptions lead to new trade alliances or stimulate production in retaliating domestic markets or other competing foreign regions, thus increasing supplies from new sources.
Market outlook for the week beginning Sept. 30, 2019
Soybeans. Larger price trend remains in a sideways trading range. The September 27, 2019 close was $8.83 per bushel, up 0.25 cents on the week or up 0.03 percent. Closing below $8.50 per bushel opens the possibility of revisiting the $8.00 per bushel area. An exit of short positions at November $8.35 per bushel is one consideration. Soybean prices likely remain in: First, a primary November futures trading range of $7.90 to $9.00 per bushel, and, second, a potential slightly broader trading range of $7.90 to $9.39 per bushel trading range, Charts B10 to B13.
Long Grain Rice. Near-term price trend remains bullish. September 27, 2019 November futures close $12.15 per cwt. or $5.47 per bushel. November prices closing below $11.48 per cwt or $5.17 per bushel would warrant caution. USDA’s WASDE September 12, 2019 report was friendly to sustaining the near-term bullish price trend, but future export demand will largely define price strength, Charts B18 to B20.
Corn. Near-term price trend remains bearish. Corn closed the week of September 23, 2019 at $3.72 per bushel, up 0.75-cents for the week or up 0.20%. Expect anemic prices, until fundamentals are more supportive of higher prices with a possible decline to $3.01 per bushel. If corn ends the week of September 30, 2019 above $3.78 per bushel, then I will consider a near term bottom possibly in place. Corn prices likely remain in: First, a primary December Futures trading range of $3.45 to $3.73 per bushel and Second, a potentially slightly broader trading range of $3.18 to $3.73 per bushel trading range, Charts B14 to B17.
Wheat. Near term price trend remains down. Wheat closed the week of September 23, 2019 at $4.87 per bushel, up 3 cents on the week or up 0.62 percent. Wheat prices need to end the week of September 30, 2019 above key resistance of $5.08 per bushel for me to favor additional price strength, Charts B25 to B28.
Cotton. Price weakness remains problematic. The September 27, 2019 close 60.90 cents per pound, up 0.38 cents on the week or up 0.63 percent. Cotton prices need to end the week of September 30, 2019 holding above 55 cents per pound or additional serious price weakness could emerge, Charts B21 to B24.
Interest Rates. 10-Year U.S. Treasury Yield: September 27, 2019 close 1.69, down 0.05 on the week or down 2.87 percent, Charts A1 to A4.
Little support exists for the 10-Year Treasury Yield until the previous low achieved in 2016 is reached at 1.37 and, given time, further downside to 1.00 or lower is now a real possibility. The November 2018 high was 3.24 percent. That said, the dynamics of the repo market and ongoing derivative exposure could spike US-Treasury markets.
The Federal Reserve’s Federal Open Market Committee lowered the fed funds rate by 0.25 percent or 25 basis points to 2.0 percent on September 18, 2019, 2019’s second rate cut. This follows 9 rate increases since December 2015.
U.S. Dollar Index. Larger trend sideways to up. The U.S. Dollar Index increased 0.64 percent the week of September 23, 2019, up 0.64 to close at 98.76. Dollar Bulls see global money increasingly flowing into the U.S. as a safe heaven. Dollar Bears anticipate continued accommodation by the Federal Reserve, reflation emerging, and the Bank of China, European Central Bank and the Bank of Japan elevating stimulus activities providing the dollar with some potential weakness, Charts A5 to A8.
Much of the world’s debt is dominated in dollars, especially frontier countries and emerging markets. Thus, a lower dollar is supportive of U.S. economic activity and global economies in general. What’s the negative to a lower dollar? A lower dollar may also be supportive of a number of building global asset bubbles.
$WTIC Light Crude Oil. Prices trading in a range with near- and longer-term price weakness. September 27, 2019 close $55.91 per barrel, down $2.18 per barrel or down 3.75 percent for the week. Present near-term trading range $51.50 to $61.18 per barrel, Charts B6 to B9.
Geopolitical uncertainties, political dynamics, coupled with possible supply disruptions, make this market unpredictable for the world’s most talented analysts, so be highly respectful of price action. Do not try to outthink this market, just follow the price action.
No Crystal Ball
Since no one has a crystal ball or knows the future always consult an investment professional or professionals before making investment decisions. The world’s most talented speculators, investors and money managers are challenged by today’s global business environment.
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