There is increased focus and anticipation heading into next week's trade talks with China. In the livestock industry, the pork market has the most at stake for things to go well. Anticipation of not only increased trade, but also an open invitation to expand pork trade into a market where demand is high and supplies continue to fall is keeping traders, and the industry as a whole, on pins and needles.
With the trade war waging on over the last year and concerns of African swine fever in China decimating pork production there, focus is on the need to increase imports into China. Although China imports of pork in general have posted significant gains in 2019, it has been evident that the U.S. is not on the top of any supplier lists due to the ongoing trade war -- and this may not change in the near future.
Given the lack of success and progress during the previous meetings between the two countries, it is fair to say that a more realistic expectation for the meetings would be for "moderate progress" to be made and hopefully plans to meet again in the near future. However, expectations going into this meeting range from no progress to an actual trade agreement. The market reaction to any of these scenarios, especially in the lean hog complex, is uncertain. The market has moved in a volatile fashion based on the rumors of China pork trade and has been disappointed by the lack of positive statements over the past months.
Over the past year, lean hog futures prices have gyrated within a $40-per-cwt-wide trading range (Oct. 19, 2018, at $51.60 to May 17, 2019, at $92.37 per cwt). The need for China to feed its population combined with the country's continued decision not to tap into U.S. pork supplies only adds volatility to the market.
The market movements are expected to increase over the next few days as more news coverage will surround the trade talks, and hopes for a positive deal will be high. More than likely, this is not a situation that can be ironed out in the next meeting, although both sides seem to have increased incentive to make significant progress. However, both sides are needing to create "hope" that a viable attempt will be seen, and this will likely spark some underlying support through the entire hog complex.
The issues of the trade deal are significant and fundamentally tied to each country's economy and how the government of each country conducts business. However, the repercussions continue to be felt by the core of the agriculture industry and by producers whose main desire and passion is to provide food in order to feed the world.
No matter what happens next week (or in future months), the ag industry will survive due to the resilience of the amazing producers at its core. But the implications will also be significant not only to the economy, but specifically to the grain and livestock industries.
So, no matter if the 13th meeting is viewed as "good luck" or "bad luck," there will be anxious eyes watching every detail concerning the meeting, as hopes for a positive outcome develop.
Rick Kment can be reached at Rick.Kment@dtn.com
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