 Hello, this is Fray Nolson, Crop Economist and Marketing Specialist with NDSU Extension. This is a soybean update for the week of April 15th through April 21st of 2019. This week I'd like to provide a very brief update on the status of the trade negotiations between the United States and China, but focus a little bit more on some of the timing of a potential agreement and what impacts that might have on your marketing plans. First let me provide a brief update on the current status of trade negotiations. U.S. and Chinese trade negotiators continue to meet on a daily basis, either via videoconferencing or conference calls, to work out and try and finalize the agreement. There was a recent report that U.S. and Chinese trade negotiators hoped to have a signing ceremony by late May or early June. Again, this is an indication that progress is being made and we're getting very close to having some kind of an agreement. U.S. trade representative Robert Lighthizer is tentatively scheduled to travel to Beijing in about two weeks, the week of April 29th, to continue the face-to-face trade negotiations. In return, Chinese Vice Premier Liu He will travel to Washington, D.C. in early April. We're also beginning to get reports about the structure of the proposed agreement. The next two slides provide a summary of information that I've been able to compile from a variety of news reports prepared by the major news agencies. First, the agreement is expected to last for 10 years. Many of the sections covering, in particular, intellectual property rights, technology and technology transfer, and financial services will require several years of transition to actually implement. Now, this transition period will extend into 2025, which makes the monitoring and enforcement of this transition very, very important. Clearly defining this monitoring and enforcement provisions have been one of the major challenges in the recent negotiations. It is important to have very clear expectations about both the timeline and benchmarks for progress, as well as what will happen if those benchmarks and timeline are not met. So there have been three different alternatives that have been reported in the news, in particular as it relates to the tariffs. The first is that the current tariffs will remain in place until progress is verified. So again, the existing tariffs will remain there until these benchmarks or the timeline has been met. Another proposal was that the tariffs will be reduced. They'd remain in place, but the rates would be reduced and progress would be monitored, and then the tariffs would increase again if progress was not met. And of course, the one that I think everybody thinks would be the most likely is that the tariffs would be removed, trade would begin to flow again, and then the progress would be monitored with tariffs returning if the progress was not made. Now each of these has very different implications for both the structure of trade between the United States as well as potentially timeline for when the tariffs may be removed. There have also been some statements indicating there will be some new enforcement offices created in both the United States and China. Now the purpose of these offices will be not only to monitor the agreement and the activities that are going on, but also to help work out some of the details or some of the issues that may come up that were not directly covered within the original agreement. In the last few days, there has been a new proposal that's been rumored to be considered. So this proposal has a little bit of a different structure. First, the US would not lift the current tariffs on Chinese imports until progress has been proven. Second, the Chinese would shift some of the current tariffs that they have on US agricultural products onto other non-ag products. This would allow China then to start purchasing US ag products more quickly. Now China has indicated, not only currently, but also in the past, that they will purchase an additional $30 billion of US agricultural products per year. And that would be over and above the pre-trade war levels. So the timeline for any increases in Chinese purchases of US ag products is still very unclear. There's a lot of details that have yet to be worked out. These purchases will likely not happen until after an agreement is reached. So again, the timing of an agreement is going to be important. The current viewpoint is that they're purchasing targets. So the targets have been put in place will be based off of dollar value amounts, not quantities. And this is a little bit different from what the grain markets are used to dealing with. Typically, we're thinking about bushels or tons and focused on quantities purchased, not necessarily the dollar values. And so again, the trade agreement seems like they will focus on dollar amounts, not necessarily specific requirements for quantities. Now we're still really uncertain on what specific ag products will be included in these purchasing targets. Will there be different target levels for different agricultural products? So example will it be a specific target for soybeans and corn and wheat? Or will all of the ag products be included in one large pool? And again, the structure of that will make a large difference on the impacts on the grain markets. For example, there are a long list of potential US agricultural products that could be on the list of increased Chinese purchases. Now soybeans is one of those possibilities, but there's also been discussions about corn, DDGs, ethanol, sorghum, wheat, cotton, rice, pork, beef, chicken, dairy, pulse crops, nuts, and a few others. Now we already have three large confirmed purchases of US pork by China, totaling about 125,000 metric ton or about 275 million pounds. Now these purchases have included the current 62% import tariff by the Chinese. So one of the things I've been asking myself over the last several weeks is if I was in charge of buying US agricultural products, if I was the purchasing unit in China buying more US agricultural products, what strategy would I use? And the most likely strategy would be to purchase those ag products that were considered to be a value buy and to try and make several small purchases rather than a few large purchases. Again, this would be a common purchasing strategy. I'm going to look at the list of potential products. I'm going to try and find whatever product seems to be the best value and purchase some of that. And again, I'm not going to come in by large amounts because that would have a relatively large impact on the prices in the future. So I'm going to start nibbling around the edges and look for those value buys. So all this information has some implications for your marketing plans or modifying your marketing plans. Now in my view, the odds of a significant price rally, either when a trade agreement has been announced, when a final agreement has been announced, or even during the signing agreement, are relatively low. The crop markets and in particular the futures markets want confirmation of Chinese purchases. There's been a lot of different rumors. There's been a lot of different stories floating around in the marketplace for the last several months. And most traders want to have confirmed purchases before they start putting some risk premium back into the marketplace. Now the big question then becomes, what agricultural products will the Chinese purchase and how much will those purchases amount to? And again, my viewpoint is that I suspect the Chinese will come in and start purchasing those items that they feel are value priced and they will likely buy relatively small amounts over time. They'll have sequential sales of smaller amounts over time. So when will the actual Chinese purchases begin to happen? My viewpoint is it will likely happen in late June or first part of July. And again, that's assuming that we have some kind of agreement signed in late May or first part of June. The reason I'm suggesting that is that we'll take some time to implement a new agreement even once the agreement has been signed. It'll take everybody a time to figure out what this means and how to implement it. And there's also an incentive to actually wait a little bit to find out what the size of the US crop looks like. And of course, by the time we get into late June, first part of July, we'll have much better estimates of the US crop size. So more specifically, what are the implications for the soybean market? Now, this chart shows the weekly export sales of US soybeans into China. And as you can see, historically, we've had very large purchases right around harvest in October and November, December. The sales volume starts to drop off a little bit during the winter months. And by the time we get into spring or spring's work, typically export sales, US export sales into China are relatively small because of the competitive pressures coming out of South America, specifically Brazil. Now, this is a chart. The red line shows purchases by China of US soybeans for the 2018-19 marketing year. And as you can see, we're well behind the normal pace. China has been purchasing small amounts of US soybeans. But again, this time of year, historically, our export sales to China are relatively low. So this is a chart of total US export sales by week. Very similar pattern to what we saw with China. Large volumes of sales during October and November to December time period, flattening out and dropping off a little bit in the winter months, January, February, March. And then by the time we get into March, April, and May, export sales tend to historically drop off quickly because of the export pressure from Brazil. Now, the red line is the 2018-19 sales. And as you can see, we're well behind the normal pace. And there's some concern now that it seems as though the 2018-19 marketing year is starting to fall into or follow this cyclical pattern that we see in the previous years where export sales start to drop off relatively rapidly as we get into the summer months. So the follow-up question is, well, how much do we have to sell every week in order to reach that forecast that USDA has for total soybean export sales? So I did the math backwards. I said, well, given what USDA is currently forecasting for this marketing year, soybean sales, and you subtract off what we've already sold, we need to average about 1 million metric ton per week for the remainder of the marketing year, the remainder of the summer, to be able to meet USDA's forecast. So that's that dashed red line at about 1 million metric ton. Now, if we can't reach that, if we're not able to attain those levels on average, that means that the forecast for ending stocks, the amount of soybeans that we're going to have in reserve just before harvest of the next year, will grow and increase. And again, that would be negative for soybean prices. This leads to another follow-up question. Are US soybeans competitively priced in the world market? Well, this graph shows the bid prices for soybeans delivered to an export terminal in one of these four locations. So the red line represents the price, the bid price, for soybeans delivered to an export facility in the Pacific Northwest of the US. So this would be the inbound price that an exporter would offer to a farmer or to the country elevator system. The green line is, again, that same bid price for soybeans delivered inbound to an export facility in the US Gulf. The blue line would be the bid for soybeans delivered to one of the terminals in Potanagua, Brazil. And then the black line would be the bid for soybeans delivered to one of the river ports in Argentina. Now, if we look on the far left-hand side, this graph begins on January 3, 2018. And as you can see, early on in 2018, before the tariffs were in place, soybean prices in all these export facilities were very, very similar. They tend to move up and down together, very competitively priced. We can also see, once the announcement, the tariffs were going to go in place. And prices started shifting that the US Gulf price dropped relatively rapidly. The price for soybeans delivered into Potanagua, Brazil increased. Now, as trade negotiations began between the United States and China, we now, again, started to see a convergence. We started to see those soybean bids at these different port facilities start to narrow up again. On the far right-hand side, this is through April 17, 2019. Now, you can see, again, that the river bids out of Argentina are starting to drop off fairly quickly. Again, recognizing that Argentina is in the middle of their soybean harvest right now, so the inflow of soybeans is relatively rapid. But we also noticed that the PNW bid, the US PNW bid, the red line, is the highest. And then we have the US Gulf port bid. And then, slightly below that, we have the Brazilian Potanagua bid. Now, if you'll notice, the red line out of US PNW is typically higher than some of the other ports. And part of that, again, is because this is the bid for soybeans delivered on the inbound to an export facility. It's not the bid for soybeans delivered to China. So we've got to recognize that there are some freight costs, some ocean freight costs, that do make the soybean bid out of the US PNW a little bit higher. The point I'm trying to make with this graphic, though, is that, yes, US soybeans are competitively priced, but the soybeans out of Brazil are lower in absolute terms than they are out of the US. And again, we have to adjust for some of the shipping costs. So let me provide a very brief recap. A trade agreement between the United States and China is nearing completion. We don't have an agreement yet. Negotiations are still ongoing. But the expectation is that we'll have some kind of signing agreement in late May or first part of June. But the details about the structure and timing of that agreement are still very unclear. And obviously, the specific terms and the timing of any kind of agreement is going to be very, very important for grain prices. There may be some price rallies during spring planting, primarily due to weather concerns or planting delays due to excess water. But Chinese purchases, in particular, of US grains will likely not occur until mid-summer. Once again, it's very unlikely that the Chinese will come in and purchase US grains until after an agreement has been signed. And we know what the structure of that agreement looks like. So if we do get some price rallies during the summer months, they will likely only be moderate unless there's some very major problem going on. And the main reason for that is that we have large grain inventories in the US right now, in particular for both soybeans and wheat. So it's going to have to be a relatively major event to get the grain market excited and get some kind of large price rallies going on. Now that has some significant implications for your marketing plan and for the timing of sales. I want to make sure that you have some realistic expectations about not only timing, but also the potential for rallies as we move into the summer months. So this concludes this week's recording. Please feel free to contact me if you have any questions. And thank you for listening.