(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here.
An initial U.S.-China trade accord included a promise by Beijing to buy more American agricultural goods. That’s likely to spark relief and questions for farmers and crop traders.
President Donald Trump signed off on a so-called phase-one trade deal, for which terms have been agreed but the legal text has not yet been finalized, according to people familiar with the matter.
Farmers and agriculture traders will likely be hungry for more details on the deal. The more than yearlong tariff spat between the nations weighed on commodity prices and upended the normal flow of global crop shipments. While grower incomes have been insulated by U.S. government aid, many in the agriculture community have said they’d rather see the return of trade flows into China than continue to be supported by federal payments.
Market watchers will want to know whether China has committed to a hard value for shipments. U.S. Agriculture Secretary Sonny Perdue said earlier Thursday that Chinese officials told Trump that they would buy $40 billion to $50 billion worth of American farm goods, but were reluctant to commit to contracts. Exactly how much China could buy and over what time period have remained crucial questions.
Corn, soybean and wheat futures extended their rallies on Friday on optimism over the deal. Soybeans, often viewed as a bellwether for the trade talks, hit their highest intraday level in more than three weeks, rising as much as 1.8%.
U.S. agricultural exports to the lucrative Chinese market started slumping in mid-2018. The Asian nation, the biggest buyer of several farm goods including soybeans, represented the biggest opportunity for growth. The drop in demand has kept prices in check amid ample domestic inventories.
The value of U.S. agricultural exports to China in 2018 was roughly cut in half from the previous year to $9.1 billion, down from $19.5 billion in 2017. For soybeans alone, the value of shipments sank to $3.1 billion in 2018 from $12.2 billion in 2017, according to Department of Agriculture data.
As the U.S. was practically shut out of the Chinese market, rival producers in Brazil were able to boost shipments. Even with the passing of a trade deal, analysts have warned that some of the lost market share may not come back because of relationships built by Brazilian suppliers.
A trade deal will probably help Trump lock in the overwhelming support he has received from rural America as he campaigns for re-election. China’s retaliatory tariffs on agricultural exports struck a heavy blow to a key segment of Trump’s political base.
Though Trump acted to counter the financial damage with a $28 billion trade aid package and maintained strong polling support in rural areas, fears among farmers that the trade conflict would do long-term damage to their share of a crucial export market remained an irritant.
An easing of trade tensions also could boost business confidence and economic growth just as the election year begins. A favorable economy historically has been among the best assets a sitting president can have in a re-election campaign.
