Recently, an industry friend pointed out the difference between a long-term trend and an event. “A long-term trend is something that won’t change overnight,” he said. “Events do.”
This difference was certainly in evidence during the past week. Over the weekend of October 12-13, the governments of the U.S. and China indicated that some kind of a trade truce might be in the offing. Both sides admitted that many, many details still needed to be worked out and that any type of final deal might not materialize for another month or so. However, this kind of progress could potentially represent a thaw in relations between the two countries that has been missing for the past 15 months.
And there’s little denying that the ongoing trade war between the U.S. and China has negatively affected U.S. agriculture. According to most estimates, every third row of U.S. grown soybeans ends up being exported to China in a normal year. In 2019, however, exports have virtually come to a halt as high tariffs have caused Chinese buyers to cancel orders and make soybean purchases from other countries such as Brazil and Argentina.
Besides grower-customers, ag retailers have also felt the revenue pinch from the U.S.-China trade war. In fact, according to the 2019 CropLife 100 survey of the nation’s largest ag retailers, 89% of respondents said this ongoing dispute has had a “significant” or “some” impact on their bottom lines for the 2019 growing season.
Yet, the U.S.-China trade war clearly falls into the event category. For proof of this, consider how the commodity markets reacted to even the hint of a possible trade deal. On October 11, corn futures jumped more than 17 cents to $3.98 per bushel on the news. Soybean futures performed similarly – moving from $8.88 per bushel to $9.36.
Hopefully, all this points to the beginning of the end of the U.S.-China trade war . . .