Crop Markets Show Little Excitement Over U.S.-China Deal

(Bloomberg) --

Agriculture markets fell Wednesday as traders grew skeptical over the newly signed U.S.-China trade deal.

Soybeans, cotton and hogs -- three of the main commodities expected to benefit the most from increased Chinese purchases -- all traded with little enthusiasm. Some traders have expressed concern that the potential benefits of the trade truce are already priced in for commodities, especially as American supplies are pretty sizable.

There was also concern over how China would reach its buying pledge of an additional $32 billion over the next two years, above pre-trade war levels. The White House offered no details on specific commodity commitments, and China hasn’t agreed to tariff reductions under the agreement.

“Signing the deal is the easy part,” Ken Morrison, a St. Louis-based independent trader, said by phone. “I have yet to hear a sound argument on how China will execute this deal.”

In an agreement signed Wednesday at the White House, China committed to importing at least $12.5 billion more agricultural goods this year than in 2017, rising to $19.5 billion next year. China will also “strive” to purchase an additional $5 billion a year in farm products. That could get total purchases next year toward the $50 billion mark.

But doubts have surfaced on whether China will meet that target, particularly since the two governments have said they will keep secret the purchase benchmarks for individual commodities. The market is already looking for real evidence that China will follow through on its pledges of more purchases, and in big amounts. It will take time for such evidence to emerge.

Trade Truce Offers U.S. Farm Relief But How Much Still Unclear

Soybeans had run up in December in advance of the deal signing, notching the biggest monthly gains in three years. However, as officials spoke in Washington, prices started to ease and then extended losses as the reality sunk in that purchases would be driven by market demand.

Brazil already has a freight advantage in shipping goods to China more cheaply than out of the U.S. Gulf. A weakening real has also made South American supplies a comparative bargain. Meanwhile, Chinese demand for soybeans could fall as the country deals with its ongoing swine ever epidemic that’s shrinking the hog herd and reduce the need for commodities used in livestock feed.

Most U.S. farm groups offered subdued praise, welcoming the deal but saying they would wait to assess the impact and urging the administration to work to lift Chinese retaliatory tariffs.

“Given the numerous deals that have been reached and then breached in the past two years, we are also skeptical,” the National Farmers Union, which advocates on behalf of almost 200,000 American farm families, said in a statement. “And without more concrete details, we are deeply concerned that all of this pain may not have been worth it.”

To contact the reporter on this story: Michael Hirtzer in Chicago at mhirtzer@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi

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