Soybeans not out of the woods yet

ABSR Research: Chart of the Day

It is not a end to the trade war, but it may be the beginning to an end. The U.S. has agreed to a 90 day extension before raising the current 10% tariff on $200 billion in Chinese goods to 25%. In exchange, China has agreed to start purchasing agriculture and industrial products (none mentioned specifically) “immediately” according to the White House. The deal was agreed to provide a workable time frame to restart negotiations and attempt to end the long running battle. That was the good news, the bad news is that if a deal cannot be reached prior to the end of the 90 days, the U.S. will raise the tariff rate to 25% and China will find other agriculture suppliers. Regardless, it will be seen as a positive development and risk assets and agriculture products like soybeans and pork products will see immediate benefits. The agreement in principal will also allow both sides to claim some victory and “save face” which was most certainly a prerequisite to any agreement. But the difficult work will now begin and the market is still going to be faced with the volatility that arises from the negotiation talks. In addition, each side will continue to posture from a stance of strength and threat of not backing down to demands. In other words, its going to be a wild ride for the next 3 months in the ag markets.

Shawn Bingham, CAIA

Source(s): ABSR Research, USDA FAS/Export Sales Reporting.

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