“Phase 1” Trade Deal

There is still a great deal of uncertainty of what exactly was agreed to but it appears that a “Phase 1” deal has finally been completed! Yesterday around midday, Bloomberg reported that a deal had been reached and it was going to be taken to Trump for approval. That is when the market really started to rally. There was a lot of confusion because for most of the day Bloomberg was the only one reporting that information. After the commodity markets closed, the rest of the wire services started reporting that a deal had been reached and Trump had signed off on it. The equity markets rallied into the close and the bond markets dropped. Overnight the headlines continued to report that a deal had been reached but curiously there was not much from the Chinese side. By this morning that had given everyone a great deal of pause and markets traded well off their highs as doubts swirled. It felt like deja vu all over again. Mid-morning the Chinese had announced a press conference and then during the press conference confirmed that a deal had been reached. Markets traded back to the highs. Then during the press conference, a Bloomberg reporter asked directly for the specifics of agricultural purchases and received a very intentional vague reply. The market did not like that and pulled back well off the highs. It is very interesting that the US side is throwing a bunch of numbers around and the Chinese side is being very vague on the commitments. The magnitude of the purchases is much more of a priority to the US than to the other side.

There are still very few concrete details. Trump on Twitter said that the tariffs scheduled to go into effect this weekend would still go into effect and they would be used to negotiate “Phase 2.” He said those negotiations would begin immediately. Several headlines of specific amounts of agricultural purchases have been circulated today. The amounts range from 32 billion to 50 billion so the market will be skeptical until there is some sort of consensus. This is very good, now we have to figure out how good. As always, the devil is in the details.


If you need to price beans and get money by the end of the year, I highly recommend pricing a few beans here. I hope that is the wrong thing to do, but we have spent several weeks below $9 and we have to manage risk. Scaling in sales when the market rallies this much is managing risk. We have a lot of 2019 crop left to sell and almost all of 2020 crop if the rally continues as we hope it will.

I think we continue to wait for $4 on corn. This deal may not be as big of a change for corn as for other commodities. We are looking to the January report and the supply side of the equation for corn. If you need to generate cash, corn has rallied quite a bit from the lows this week but I would not be as quick to price corn right now. I would still be looking for $4 March.

I do not think we change our plan on wheat. $5.50 July wheat is within striking distance and I see no reason to change our objectives significantly right now.

Cotton had a lot more volatility than the grains today. Cotton had a 137 point range today and ended up closing down. The devil for cotton is very much in the details. We need to see the commitments before cotton is going to react strongly. If we reach $0.70, we need to be selling cotton aggressively.