The trade environment involves three key sets of variables: China and the trade deal, macroeconomic conditions globally, and potential political instability. We know that the trade dispute has had significant impacts on trade with China, especially for soybeans. Resolving that dispute will help but not cure the problems. In the Phase 1 trade agreement signed in January 2020 (after this presentation was delivered), China committed to significant increases in purchases of agricultural products, but exactly what products and whether reaching their goals is possible remain to be seen. Regardless, we can presume that the deal will help support U.S. prices by increasing offtake of U.S. commodities. However, China remains one of the largest subsidizers of agriculture around the globe. These subsidies damage the competitive position of U.S. and other exports to China, and so in the long run, addressing China’s egregious violations of the WTO agreements will be necessary. Current macroeconomic projections are not particularly favorable to U.S. agriculture. Higher energy prices will squeeze input costs, and higher interest rates will both raise the cost of borrowing money and strengthen the U.S. dollar, thereby reducing export competitiveness. Therefore, forecast U.S. commodity prices are relatively flat. Of course, the Phase 1 deal with China will alter that trajectory some in favor of higher prices in the longer term. Finally, political instability in Hong Kong and the United States and uncertainty about other trade relationships between the United States and former NAFTA countries, as well as Europe, all add some uncertainty to long-term projections. Some of the issues have been resolved (USMCA), but others have not.
