Over the past week, we have seen an easing of trade tensions between the U.S. and China. While tariffs remain in place between the two countries, both sides have agreed to no new tariffs at this time. China has even stepped up and bought U.S. soybeans with existing tariffs in place. This has generated ideas that we could see a positive outcome when the two countries sit down next month to work on a full resolution.
The real winner in a trade resolution with China may be the pork industry. China has proven several times in recent weeks that it can source protein products from several suppliers in the global market. This is not the case with pork, as the U.S. is one of the only suppliers with adequate reserves for export. If China’s pork supplies are dropping as fast as thought, the country may wish to make purchases ahead of its fall and winter holidays rather than cut into government stocks.
More concerns are being voiced over the state of the rural U.S. economy. Many farmers did not get 100% of their acres planted across the Corn Belt this year, which is greatly impacting their cash flows. Some of these farmers may not see revenue for another year. Even with government payments, this does not cover the ongoing expenses that continue to roll in. Some producers are considering the planting of alternative crops, mainly winter wheat, to try to generate incomes sooner than normal next year because of this.
These fears are being confirmed by farm debt figures. According to USDA economists, U.S. farm debt with hit $415.7 billion this year. This is the highest level since 1982. The high figure is a result of real estate debt outpacing asset growth and compounds concerns over low commodity values. Net farm income for the year is expected to increase from earlier estimates though as farmers start to receive Market Facilitation Payments.
Farmer selling across the United States has lightened up considerably in the recent weeks. Many farmers claim to have all the old crop inventory of both corn and soybeans marketed that they currently wish to. This is even in the regions where crops look good as producers feel if they hold on they will be rewarded once harvest begins, as they do not feel yields will be as high as currently expected. While this has caused basis values to firm, a reduction to demand has limited their appreciation.
This commentary is the sole opinion of Karl Setzer, market adviser for AgriVisor. This is intended for informational purposes only and not to be used for specific trading recommendations. The information used to generate this commentary is gathered from a variety of sources believed to be accurate. If you have any questions or would like additional market information, feel free to contact Karl at firstname.lastname@example.org. You can also follow Karl on Twitter via @ksetzergrains.