Commodity Insight: Get with the times

Yes, the trade war with China that lasted nearly two full years is over. Yes, China signed a historic treaty with the United States, committing them to buy $80 billion worth of U.S. ag commodities over two years.

Yes, the dollar amount China has pledged to buy has never before in history been attempted by any nation. Yes, the trade deal with China is good for them and very good for U.S. farmers and ranchers.

But now what?

First, let me point out a few things that are evident and well known. Also, allow me to point out a few things that remain a mystery and only with the benefit of hindsight will we know how things actually unfolded.

The trade deal with China is potentially quite bullish for American farmers and ranchers. But there are a number of moving parts to the trade deal, and those have to be recognized.

There is no way of knowing for sure what China wants in the way of U.S. foodstuffs. Nor is there anyway of knowing how much it needs. Or, when it needs it.

Believe me, China will keep those cards very, very close to its vest and offer no hints whatsoever about what it will be doing. Certainly, there are educated guesses floating around about Chinese needs, but until it is confirmed by the U.S. Department of Agriculture, everything is rumors and nothing more.

With China signing a historic trade deal it means U.S agricultural has “new-found demand” that will underpin the ag markets and prices. Understand that Chinese traders and buyers are shrewd.

They will not chase markets higher. They will buy weakness, which only makes sense.

As an ag producer or trader, you should do the same. Avoid buying strength. Avoid selling weakness.

I have also argued that this year and in the years to come, climate change will impact the growing seasons for grains in the United States and elsewhere on the globe. And I am not alone with such reasoning.

Recently, BlackRock, the world’s largest money manager with $7 trillion in assets under management, had this to say, according to CNBC News, in a headline that blared, “Here’s how the world’s largest money manager is overhauling its strategy because of climate change.”

BlackRock CEO Larry Fink said, “Climate change poses a real risk to long-term viability, and companies can no longer afford to ignore these risks.”

Earlier this week and also from CNBC News, this headline was posted: “Climate experts demand world leaders stop walking away from the science.”

Here is a statement from that posting: “The UN has recognized climate change as ‘the defining issue of our time,’ with a recent report calling the crisis ‘the greatest challenge to sustainable development.’”

When BlackRock, the world’s largest money manager starts squirming over climate change, so do I. When the United Nations argues climate change is “the defining issue of our time,” it should be listened to and carefully.

The key to success in farming and ranching is marketing. That is how is has always been, and that will not change — ever.

And the key to agriculture commodities, the wild card so to speak, is Mother Nature. Or, climate change.

Imagine what the ag markets could possibly do on the upside with China, a big buyer of U.S. foodstuffs for the next two years, just as unusually threatening weather blankets the Grain Belt.

The decade that just ended was the warmest for the world as a whole in all of history. The year 2019 was the second warmest in history. The five years leading up to 2020 were the warmest in history. The only reason crops were not impacted is the threatening weather was absent in July and August here in the United States.

The combination of new-found demand with China and the distinct prospects of serious climate change issues has the potential to be wildly bullish the agriculture markets.

American agricultural producers have dodged a bullet for the past several years. I doubt that will happen again this growing season or the years to come.

The key to success in agricultural is marketing, plain and simple. For one of the few times in history, American farmers and ranchers are looking at new-found demand coupled with the distinct possibility that Mother Nature, or climate change, will make or break a host of foodstuff markets.

My advice this week? Hone your marketing skills and reach out for help.

Times have changed. Get with the times.