It’s déjà vu all over again as the ubiquitous “people familiar with the matter” say China is thinking about buying some US farm products in a “goodwill” gesture as trade negotiations resume following the Trump-Xi truce struck over the weekend in Osaka.
Products that could see new Chinese demand include corn, pork and, of course, soybeans.
According to sources who spoke to Bloomberg, volumes will be determined by how much progress there is in the talks, but regardless, the purchases will “probably be smaller than the amount China committed to buy during the previous truce”.
That makes sense, considering how the “previous truce” worked out for Beijing.
“In our view, the Chinese side understands the highly uncertain nature of the current ceasefire and therefore holds a reasonable amount of doubt in any offerings”, BofA wrote Sunday, commenting on the Osaka truce.
Donald Trump has proven himself to be a man who negotiates in bad faith and it didn’t help his reputation when he threatened to slap tariffs on Mexico, a country with which the US had already struck a trade deal. That seemed to suggest, to the rest of the world, that even an agreement with the administration isn’t enough to take the threat of tariffs off the table.
“We believe the more likely proposal from China is some form of agricultural trade diversion back to the US, which would make little difference to the bilateral trade imbalance”, BofA said, in the same note mentioned above, on the way to reminding you that agricultural products including soy beans, grains and pork “only accounted for 6% of China’s imports from the US in 2018 down from 13% in the previous year.
(BofA)
Following the December truce in Argentina, Beijing promised to buy more than 20 million tons of US farm product.
But, again, this is largely symbolic in the context of shrinking the bilateral deficit, Trump’s Holy Grail in the trade talks. “Even if China boosts its US agricultural imports in 2019 to reach the historical peak level in 2012, it would only add US$18 billion to Chinese imports… too small to matter relative to the annual bilateral imbalance of US$420 billion”, BofA cautions.
Farmers are keeping the faith it would seem. Despite the collapse in farmer sentiment tipped by the Purdue University/CME Group Ag Economy Barometer, a Farm Journal Pulse survey conducted Monday showed some 79% of farmers approve of the job Trump is doing, including 53% who strongly approve. That despite the government being forced to commit to billions in handouts to alleviate the suffering caused by the trade war.
“Many in the ag sector hope the president works things out with China, but know it is a difficult endeavor”, said Jim Wiesemeyer, a Pro Farmer Policy Analyst.
Yes, it is indeed a “difficult endeavor”, Jim.
It seems as though sooner or later this stock market will catch on to the fact that there is a law of diminishing returns involved in recycling the old bullish events that didn’t work the first time around..A little like putting stale crackers back in the pantry for future use wouldn’t you say???
Probably get a rally anyway though…..