Over the past two trading days, commodity markets reacted positively to the news that a phase one trade deal has been struck with China, but doubts still linger. On Friday, the Wall Street Journal reported that an agreement had been reached, but early in the day, President Trump told reporters that that was fake news. A couple of hours later though, a government spokesperson acknowledged that an agreement had been reached. Yesterday, commodity markets closed with corn up 7 cents per bushel, soybeans gained 14.5 cents and wheat out shined all of the grains by gaining over 17 cents for the day. While this news seems to indicate that the year-and-a-half ole trade war is finally winding down, ag economists are and trade analysts are telling farmers to be cautious about reading too much into the preliminary trade deal. Trade Representative Robert Lighthizer stated that larger farm exports would be a major element of the target of $200 billion a year in manufacturing, agriculture, services, and energy sales to China, and by the second year, the U.S. will almost double exports of goods to this country if the agreement is in place. But Joe Glauber, Senior Research Fellow at the International Food Policy Research Institute pointed out that officials spoke as if farm trade was running at $21 billion a year, a level seen before the trade war. So the minimum of $40 billion annually in sales would require an increase of $16 billion or so over the amount of agricultural products shipped to China in 2017, before the trade war started. On November 25th, Glauber said that “It will be very hard to get to the $40 bil let alone $50 billion promised.” So ag economists and farm management advisers are counseling farmers and ranchers to a while before inking contracts to buy new half million dollar tractors or signing a deal to purchase more land, because there are still too many unknowns about this trade pact.
Farmers often question the producers’ share of the consumer food dollar, because they believe that actual production is the most valuable contribution even though it normally averages just 7-10% of the total consumer food dollar in the U.S. Food Services comprise the top category at a substantial 36.7¢. Food Processing ranks a distant second at a still significant 15¢. Retail Trade occupies a relatively close third at 12.6 wholesale trade at 9.1¢. Farm Production finally enters the ranking in fifth place at just 7.8¢. Transportation ranks sixth at 3.5¢. Energy follows at seventh and 3.8¢. Other ranks eighth at 3.4¢ Finance & Insurance occupy ninth at 3.2¢. Advertising is tenth at just a low 2.6¢. Packaging closes at eleventh and a slim 2.3¢. Although many consumers think that food costs too much in the U.S., USDA Data indicates that the average shopper spends about $2,273 per person for food, or about 6.4% of their annual income.
Benjamin Franklin is credited with saying, “When the well’s dry, we know the worth of water.”