In the non-surprise of the day, Trump Says China Meeting Might Not Happen.

“We’re not ready to make a deal, but we’ll see what happens,” Mr. Trump told reporters Friday morning. “We will see whether or not China keeps our meeting in September.”

Global markets have swung this week after moves from China’s central bank triggered fears that the trade fight with the U.S. could spread to a new front in the foreign-exchange markets.

What began as a rout on Monday--with U.S. stocks suffering their worst one-day drop of the year--reversed course as Beijing didn’t take as aggressive a stance on weakening the yuan as some investors had feared. The S&P 500 rebounded 1.9% on Thursday, before resuming its drop today. All three major U.S. indexes are on pace to finish the week in negative territory.

Corn Exports Dive

Reuters reports U.S. Corn Exports Dwarfed by Brazil, Soy Shipments Ride on China.

According to data published on Friday by the U.S. Census Bureau, the United States exported 3.07 million tonnes of corn in June, the smallest June volume in six years and the smallest for any month since November 2017. This was also off 57% from last June’s blockbuster performance.

U.S. corn shipments in the first 10 months of the 2018-19 marketing year that began Sept. 1 totaled 46.6 million tonnes (1.84 billion bushels). That is down 5% from a year earlier, and June was the first month in which 2018-19 corn exports slipped behind those of the previous year.

The United States still had 6.7 million tonnes of corn to export during the final two months of the current marketing year to meet the full-year forecast of 53.3 million tonnes (2.1 billion bushels) set by the U.S. Department of Agriculture. That target had been as high as 62.9 million tonnes (2.475 billion bushels) last October.

July and August shipments need to average 3.36 million tonnes to meet that expectation, which is well below the recent average, but weekly export inspection data from the USDA suggests that July may have fallen short of that mark.

Brazil Corn

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Soybeans

Between September and June, shipments totaled 38.95 million tonnes (1.4 billion bushels), down 24% on the year.

Exports to China reached 1.73 million tonnes in June, some 54% of total exports for the month. That was China’s largest monthly share of U.S. soybean exports and the first time it exceeded 50% since January 2018.

Early Tuesday morning in Beijing, China’s Commerce Ministry announced that Chinese companies have stopped buying U.S. agricultural products and that China could possibly place import tariffs on any products that were bought after Aug. 3.

It appeared that China still planned to honor earlier agreements to import U.S. soybeans, which would mostly be shipped this month and next month. The trade dispute also seriously threatens the 2019-20 U.S. soybean export campaign if its top buyer plans to shun the U.S. oilseed.

Outstanding sales for the 2019-20 marketing year are already at a multiyear low. As of July 25, only 3.33 million tonnes of U.S. soybeans were on the books for the new year beginning in less than a month. That compares with 10.4 million tonnes a year earlier and 6.4 million two years ago.

Monthly Soybean Exports Non-China

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Trade is Normally Fungible

On the surface it would appear that if the US did not ship soybeans to China, then Brazil would. In turn, the US would simply ship elsewhere.

That has not happened. Here's part of the explanation.

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Food Prices Surge in China

Please consider China’s Surging Food Prices Won’t Weaken its Hand in the Trade War, Economists Say.

New data Friday showed China’s July food prices jumped 9.1% from a year ago. A key contributor was the 27% rise in pork prices amid an outbreak of African swine fever, while fresh fruit prices also climbed 39.1%. The rising price of food — which may only get worse with a halt on U.S. agricultural imports — won’t have major ramifications for Beijing as it continues its tit-for-tat trade war with Washington, according to experts.

The figures come as China announced this week that it would suspend imports of agricultural products from the U.S. This was in retaliation to President Donald Trump slapping a 10% tariff on an additional $300 billion in Chinese goods.

The European Union is China’s biggest trading partner, and China is planning to import more agricultural products from Europe in order to mitigate the loss of U.S. imports, along with ramping up its domestic sustainability. Sourcing from outside the U.S. will actually increase China’s food security by reducing its dependence on the U.S. as a single provider, meaning it will no longer be “hostage to potential export restrictions” in future, said Rory Green, China and North Asia economist at TS Lombard.

This would mean rising food prices are unlikely to force President Xi Jinping into a softer stance on Washington, since authorities would rather pay higher prices for European pork or South American soybeans than cave in to the U.S.

Winning Not

Without a doubt, the US can inflict more pain on China than the other way around. But Inflicting more pain than you receive is not winning, it is still losing.

China would rather suffer than give into Trump.

China has that luxury as it does not hold elections while the US does.

Addendum

A reader comments "Nary a word on strength of $US ... or record floods in Midwest."

OK - Floods

The applicable charts are from September 2018 through June 2019.

  1. Does the US harvest either corn or Soybeans in May for June shipment?
  2. Or do June shipments represent last year's crop?

OK - Strong Dollar

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For the period in question, the yuan was primarily strengthening. The yuan weakened from mid-April through May, then strengthened slightly.

Call it a wash if you like, but on average, the yuan slightly strengthened vs the US dollar for the agriculture export period in discussion.

Going back a bit further, the yuan strengthened from December 2016 through March 2018, weakened through September 2018, strengthened through February 2019, then weakened through June.

Conclusions

  1. The weather in 2019 was clearly was not a factor.
  2. Neither was the strength or weakness of the yuan during a ping-pong match.

Mike "Mish" Shedlock

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