The China-U.S. mega trade deal promising big things for ag product sales has seen some of its momentum lost to the coronavirus outbreak.
“It makes things way more complicated,” says Don Close, a senior analyst at RaboResearch Food & Agribusiness. “As soon as that agreement was signed, U.S. markets started to sell off, and have been disappointed because we haven’t seen any of these mega-transactions reported.”
Initial disappointment, however, does need some context. In most cases, there are still tariffs in place up to 30 days from the trade deal signing, so sales will take time.
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Hear RaboBank’s Don Close on the Phase 1 trade deal (and the potential for time-delayed purchases), opportunities in Japan, packer margins, predictions for feed value, and the potential for MFP 3.0.
“There’s some initial disappointment. No doubt on coronavirus, it’s an absolute unknown — we’ve got to get an idea if ‘is this disease coming under control or not?'”
While Close expects it will be coming under control in short order, he says it’s too early to make that claim now.
There’s also plenty of discussion on where the US$80 billion over two years is going to come from. Close says it’s likely to be heavily dependent on ethanol and proteins, including beef, pork, and chicken, to make up that kind of value on ag products.
The US$80 billion is huge number, one that may seem pretty lofty to achieve, and Close says that as long as there’s a good effort to get there — that the intent is there — he’s less particular on whether or not the purchases add up to exactly that figure. Most sales, he says, are likely to fall in the third and fourth quarter, to align with U.S. harvest, as soybean sales are sure to make up at least part of that figure.
There’s also the Japanese market to think about — Canada has enjoyed preferential access to Japan, but with the U.S. now coming online to enjoy that too, does this create friction between the two countries on protein sales?
“I think it is an incredible opportunity for the U.S. and I think it will mean a recapture of several percentage points of market share,” says Close, adding a big factor in this is what’s happening in Australia, concerning wildfires, dry weather, and lost production. He views the real opportunity coming from Australia’s lost production more so than Canada and the U.S. duking it out.
Close adds that both the U.S. and Canada have a lot of cattle on feed and this added market demand is needed both north and south of the 49th.