“Unless a negotiation path forwarded at G20 in Japan, US/China trade fight will be an extended one”

Daniel Basse, President of AgResource Co.: “It appears that the US/China are embroiled in a trade war that could last into the next US presidential election – November 2020. Neither the US or China seems willing to move too far on their trade positions. Unless Trump and Xi can come up with another negotiation path forward at the G20 meeting in Japan in late June, the US/China trade fight will be an extended one.”

Daniel Basse, President of AgResource Co.

Negotiations between the U.S. and China appear to have stalled as both sides dig in after disagreements earlier in May. If the conflict rages on, the global grain market could be hit the hardest by new rounds of tariffs. How the market would be affected if the trade war goes unsettled? We ask this question a highly respected international commodity analyst and economist; Daniel Basse, President of AgResource Company, an international agricultural research firm located in Chicago. Basse, who is known his accurate global supply and demand forecasts and farsighted analysis, shares his opinion with us on that significant matter.

Here are Mr. Basse’s answers to Miller Magazine:

I think the biggest uncertainty and challenge for the global grain industry is U.S-China trade war. How has it affected the industry so far?
It appears that the US/China are embroiled in a trade war that could last into the next US presidential election – November 2020. Neither the US or China seems willing to move too far on their trade positions. And why should China move if there is the potential of a new US president in just 17 months? Unless Trump and Xi can come up with another negotiation path forward at the G20 meeting in Japan in late June, the US/China trade fight will be an extended one.

What are the future implications of the trade war for the global grain market?
Yet, the biggest impact on the world grain market is China’s struggle with African Swine Fever and its reduced import demand for soybeans. China has been the only drivers of enlarged oilseed demand in recent years with that trend now flattening. This means that grain and oilseed oversupply will persist assuming all major producing nations enjoy normal weather. It’s a world awash in grain looking for the next demand driver.

One of the major risks for the grain market is protectionism. Do you think the trade war between U.S. China would lead to a rise in global protectionism? Is there any instrument to prevent protectionism trend in the world? What can WTO do in that respect?
If the trade war goes unsettled, it does not increase or decrease total world grain or oilseed demand. It shifts trade flows with South America filling China’s soybean imports and the US the remainder. US Gulf soybeans hold at a steep discount to South American fob offers to attract demand from non-Chinese importers. And from time to time, Argentina imports US soybeans for crush so that they can export their soybeans to China.

What do you suggest for grain trading companies to minimize the effects of these trade tensions?
Margins for grain trading and processing firms are tight and are expected to remain that way. Too much supply chasing too little fresh demand. Major exporting firms keep cutting staff and becoming leaner.

What are the other major issues affecting the grain markets?

A loss of supply is needed via weather to entice rallies in prices. The best chances for such concern is May-June and July for the Northern Hemisphere and December-January-February in Latin America.

The world expects a bumper wheat harvest for 2019/2020 season. World grain yields rising faster than demand. How does it impact the market?
The world grain industry is waiting for its next demand driver — there may be some increase in China corn imports via ethanol, but that likely will be after 2021.

Blockchain is becoming more significant for global grain trade. How the blockchain will change the conventional grain trade?
Blockchain is a way of keeping track of grain flows and measuring quality with certainty. It will help the accountants and risk managers. But it will also allow for more direct contracting with producers with grain flows directly from the farm to the end user.

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