The Trump Administration, with Congressional support, intends to level the global economic playing field and limit China’s highly aggressive global predatory policies related to intellectual property (IP), technology, and innovation.
China’s leadership is completely open about their ambitions to dominate U.S. and global technology, finance, and military supremacy. Neither the Trump Administration nor Congress intend to allow China to achieve across the board global supremacy.
The ongoing U.S. and China collective policy disputes coupled with an endless array of other global policy and geopolitical issues have softened global demand for a number of U.S. agricultural commodities and products, so all have to be especially thoughtful of their business environment.
The following is from the Congressional Research Service (CRS). On March 22, 2018, President Trump signed a Memorandum on the Actions by the United States Related to the Section 301 Investigation. Described by the White House as a targeting of China’s “economic aggression,” the memorandum identified four broad policies that justified U.S. action against China under Section 301.
The report says China:
- uses joint venture requirements, foreign investment restrictions, and administrative review and licensing processes to force or pressure technology transfers from U.S. companies to a Chinese entity;
- maintains unfair licensing practices that prevent U.S. firms from getting market-based returns for their IP;
- directs and facilitates investments and acquisitions which generate large-scale technology and IP transfer to support China’s industrial policy goals, such as the Made in China 2025 (MIC 2025) initiative; and
- conducts and supports cyberintrusions into U.S. computer networks to gain access to valuable business information.
The following is a CRS timeline for Section 301 Investigation of China’s IP and Innovation Policies:
- 8/14/2017—President directs USTR to consider investigation on China’s laws, policies, practices, or actions affecting U.S. intellectual property and forced technology transfers.
- 3/22/2018—USTR releases Section 301 report and finds that China’s policies are “unreasonable or discriminatory, and burden or restrict U.S. commerce.” President signs memorandum proposing to: (1) implement tariffs on certain Chinese imports; (2) initiate a WTO dispute settlement case against China’s discriminatory technology licensing; and (3) propose new investment restrictions on Chinese efforts to acquire sensitive U.S. technology.
- 4/6/2018—USTR publishes proposed list of products to be subject to additional 25 percent tariff.
- 5/19/2018—United States and China release joint statement as initial negotiations held to resolve U.S. concerns.
- 5/29/2018—President announces U.S. plan to proceed with Section 301 actions, including 25 percent tariff on $50 billion of U.S. imports.
- 6/15/2018—USTR releases two-stage plan to impose 25 percent tariffs on approximately $50 billion of Chinese imports.
- 6/18/2018—President directs USTR to propose additional list of imports (stage 3) valued at $200 billion to be subject to10 percent tariff if China retaliates against Section 301 tariffs.
- 7/6/2018—United States imposes stage 1 tariffs (25 percent tariff on $34 billion of U.S. imports).
- 8/23/2018—United States imposes stage 2 tariffs (25 percent tariff on $16 billion of U.S. imports).
- 9/24/2018—In response to Chinese retaliatory tariffs, United States imposes stage 3 tariffs (10 percent tariffs on $200 billion of U.S. imports to increase to 25 percent on January 1, 2019).
- 12/1/2018—President announces new negotiations with China to resolve U.S. concerns and declares stage 3 tariffs will remain at 10 percent.
- 5/5/2019—President tweets negotiations are moving too slowly and plans to increase stage 3 tariffs to 25 percent and to prepare tariffs on remaining Chinese imports (stage 4).
- 5/10/2019—United States imposes stage 3 tariff increase to 25 percent.
- 5/17/2019—USTR publishes proposed stage 4 tariff list (25 percent tariff on $300 billion of U.S. imports).
Market dynamics and outlook for the week beginning June 3, 2019
Interest Rates: The trend remains sideways for 10-Year U.S. Treasury Yield with a downside bias, some correction of the downside is warranted, Charts A1 to A4.
The 10-Year U.S. Treasury Yield or interest rate May 31, 2019 was 2.14 and presently my contention, is given time, has the potential to revisit the July 2016 low of 1.43. The November 2018 high was 3.24. That said, we need to take this market a week at a time as we analyze global geopolitical dynamics and global government and central bank intervention.
U.S. Dollar Index: The U.S. Dollar Index simply remains in a slowly rising sideways to up trading pattern, which will likely be sustained for a period, Charts A5 to A8.
The dollar is currently at 97.48 on June 3, 2019. Consider the following about the U.S. dollar:
- First, A rising dollar will place a drag on U.S. domestic and global growth, given today’s global economic dynamics;
- Second, a neutral to lower dollar would be supportive of current U.S. economic activity and global economies in general; and
- Third, currency imbalances remain one of global leadership’s biggest challenges.
- Fourth, China has a near term regional Asian objective of expanding trade in their currency.
Soybeans: Since February 2019 soybeans prices remained in a sideways to down trading range. The potential trading range remains $7.77 to $9.30 per bushel given U.S. planting uncertainties, May 31, 2019 close $8.78 per bushel. If support at $7.77 is lost then serious weakness to $7.00 becomes a real possibility, but planting uncertainties remain, Charts B10 to B13.
Corn: Rain delayed planting continues problematic with final 2019 U.S. planted acreage remaining highly uncertain. Corn closing and holding the week of June 3, 2019 above $4.40, would certainly open the door for a price advance to the 2014 price high of $5.19. That said, producer efficiency, swine flu, global policy disputes and competition, lagging exports, and other geopolitical uncertainties are weighing heavy on this market, May 31, 2019 close $4.27 per bushel, Charts B14 to B17.
Long Grain Rice: Near term rice remains in a sideways trading range. The primary trading range presently is July $10.25 to $11.48 per cwt. or $4.61 to $5.17 per bushel, May 31, 2019 July close $11.46 per cwt. or $5.16 per bushel, Bearish domestic and global fundamentals remain problematic for this market, but “HOPE” remains March 29, 2019 planting intentions will fall significantly short, so now we wait on the June 28, 2019 USDA NASS Acreage Report, Charts B18 to B20.
Cotton: Price weakness remains problematic. Cotton prices need to hold above .64-cents the week of June 3, 2019 or serious price weakness could emerge, May 31, 2019 close .68-cents per pound, Charts B21 to B24.
Wheat: Price weakness remains. Wheat prices need to close the week May 27, 2019 above $5.08 per bushel for me to consider a stronger near term price advance, May 31, 2019 close $5.03 per bushel. We will adjust our estimates as market dynamics unfold, Charts B25 to B28.
Global Equity ETF-ACWI: A bearish interpretation for this ETF continues to develop. Support at $71.00 did not hold the week of May 27, 2019, so potential downside to $67.00 or lower is now a consideration, a slowly rising dollar will continue to put additional downside pressure on price.
Global equity market performance as measured by the All Country World Index ETF-ACWI, a broad range of international developed equity and emerging market companies, Chart A19B, on May 31, 2019 had a value of $70.05. Its previous all-time high was $75.94 in January 2018 and its near term low was in December 2018 at $60.92.
Emerging Markets ETF-EEM: This global emerging market ETF remains dangerously weak, which is a near term function of U.S. dollar strength, global market rebalancing, ununiform global economic momentum, debt burdened emerging economies and global geopolitical uncertainties.
Emerging Markets ETF-EEM, Chart A20, made a high in January 2018 of $50.98, a low in October 2018 of $37.02, May 31, 2019 price was $40.70. The dollar’s near term slowly unfolding strength, China’s aggressive policy actions negative impact on global economic activity, coupled with European Union economic uncertainties are three key factors, which could limit near term potential upside to this ETF.
S&P 500: Interesting building weakness as prices move from all-time highs of 2954 on May 1, 2019.
May 31, 2019 the S&P 500 is at 2752, up from the December 2018 low of 2347. The S&P 500 still has the potential to make new all-time highs from current levels, but if global economic momentum remains problematic, then this index likely starts the process of defining a trading range in coming months.
$CRB Index: This index likely revisits or exceeds its December 2018 low of 168, as market participants continue to digest global economic and geopolitical uncertainties, May 31, 2019 close 175.
With global deflationary forces, remaining problematic; with many of the world’s commodities still surplus burdened; with the ongoing global realignment of the world’s currency, bond, equity, and commodity markets; and with a number of key global policy disputes, there simply remain limitations to this index’s near term upside, unless oil prices regain their upward advance which presently seems to be waning as Middle East tensions cool. Charts B1 to B5.
$WTIC Light Crude Oil: Light crude oil prices could not hold $55.74 the week of May 27, 2019, so price weakness to $45 becomes a consideration, May 31, 2019 close $53.50 per barrel, Charts B6 to B9.
Bearish fundamentals, geopolitical dynamics, coupled with possible supply disruptions make this market challenging for analysts, so be highly respectful of price action.
Rice outlook video
Title: U.S. and Global Rice Outlook with Dr. Nathan Childs, USDA ERS Rice Economist, Thursday, May 30, 2019 at 10 AM CST
Description: The May 30 webinar examined the outlook for the U.S. and global rice markets in 2019/20 based on the May 10 World Agricultural Supply and Demand Estimates report. For the U.S., total supplies are projected to be up more than 6 percent, a result of an extremely large carryin more than offsetting a smaller crop. U.S. exports are expected to increase in 2019/20, a result of the larger supplies and lower prices. In the global rice market, production is projected to drop slightly from the 2018/19 record, mostly due to smaller crops in China and India. Global rice trade in 2020 is projected to be up more than million tons from this year, with the Middle East and Sub-Saharan Africa accounting for most of the import growth. India and the U.S. account for most of the expected export growth in 2020. Ending global rice stocks in 2019/20 are projected to be record high.
Video link: https://bit.ly/2W4MA6U
Market outlook webinar video
Title: USDA’s 2019/20 U.S. and Global Forecasts for Rice, Grains, Oilseeds, and Cotton with Rachel Trego, International Economist, U.S. Department of Agriculture Foreign Agricultural Service, May 23, 2019
Description: Rachel Trego presented the new 2019/20 forecasts that USDA published on May 10 for rice, grains, oilseeds, and cotton. The presentation included U.S. production, use, and exports, as well as global trends and developments with key competitors and markets. In addition, Ms. Trego highlighted data and analysis resources available from USDA and accessible on the FAS website.
Video link: https://bit.ly/2Qqctgg
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.
Bobby Coats is a professor and extension economist in the Department of Agricultural Economics and Agribusiness, University of Arkansas System, Division of Agriculture, Cooperative Extension Service. E-mail: email@example.com.
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