(Bloomberg) -- There’s been plenty of back and forth in the U.S.-China trade war. But for the first time in months, crop markets have started to show some optimism that the two sides can reach a deal, giving American farmers some hope.
China is encouraging companies to buy U.S. farm products, which it will exclude from added tariffs. That’s the latest in series of baby steps Bejing and Washington have taken in the last week to ease trade tensions. In the past, agriculture prices have had muted reactions to similar developments, with rallies on deal progress quickly fading.
This time, though, the gains stuck -- at least, for a week.
Soybean futures closed the week up more than 4%, the biggest gain for the November contract since May. October hogs surged 10%, the most since April, and cotton had its best week since June 2018.
A trade deal would be welcome relief for American farmers. The dispute has undercut their profits and boosted debt levels after demand fell off from China, the world’s top soy, pork and cotton buyer. The trade woes came on top of bouts of extreme weather as historic spring flooding hampered plantings.
“If this China deal gets signed, it could just change things overnight,’’ Jere Solvie, a hog, soybean and corn farmer in Hancock, Minnesota, said by telephone.
While hog futures have surged, cash prices in the Midwest have yet to recover. Solvie said that “hopefully” gains in the futures market will lead a turnaround in the cash price.
“That will be a lifesaver because everybody is scraping the bottom of the barrel here,’’ he said.
There’s already evidence of fresh Chinese buying. On Friday, the U.S. government reported 204,000 tons of soybeans sold to the Asian nation, the first such announcement in more than two months.
Producers of other farm goods are hoping to see similar purchases.
“We are hopeful that this apparent gesture of goodwill by China leads not only to more sales of U.S. pork, but that it contributes to a resolution of U.S.-China trade restrictions,” David Herring, a North Carolina hog farmer and president of trade group National Pork Producers Council, said in a statement.
The trade news helped grain markets shrug off a report from the U.S. Department of Agriculture on Thursday that showed bigger yields than analysts had forecast. Even after the bearish supply news, corn, soybeans and wheat all closed higher. That’s a signal to many market watchers that prices may have found a near-term floor.
Traders holding short wagers “got all they could’ve hoped for in yesterday’s report,” Jacob Christy, a trader at The Andersons Inc., said in a video posted online. “It feels like we’re about to enter a re-balancing period.”
Prices could start to post “some further gains in the interim, and at the very least, the markets probably scored their interim lows for now,” he said.
Still, crop markets are “far from a tight supply-and-demand scenario said Ana Luiza Lodi, an analyst at INTL FCStone. That could limit rallies since inventories remain relatively ample.
But this year’s plantings delays means that corn and soybeans are still relatively immature and many fields are still weeks away from harvest. That leaves crops vulnerable to early frost.
“There’s way too many unknowns to be that optimistic” about the size of the crop, said Tanner Ehmke, manager of the research team at agriculture lender CoBank ACB in Greenwood Village, Colorado. “That uncertainty is going to be risk to the upside” for prices, he said.
--With assistance from Tatiana Freitas.
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