By Walt and Alex Breitinger
On Jan. 16 the U.S. Senate overwhelmingly ratified the U.S.-Mexico-Canada Agreement (USMCA), an update to the 90’s-era NAFTA deal. The new pact is largely similar to NAFTA but has some key provisions to support U.S. auto manufacturers, protect the environment, and update intellectual property safeguards. U.S. dairy producers should also see increased exports, but the deal largely should leave commodities markets unaffected.
More crucially, on Jan. 15, President Trump signed the Phase One Trade Agreement between the United States and China, a substantial move toward ending the trade war between the two countries.
The deal reduces some of the tariffs placed on Chinese goods in exchange for China updating its policies around intellectual property and agreeing to purchase more U.S. goods, especially farm products. Under the agreement, the Chinese are committing to nearly double their purchases of U.S. agricultural goods, which would be a substantial boost to U.S. farmers.
However, quickly after penning the deal, Chinese Vice Premier Liu He said that China’s purchases would be driven by “market demand in China,” a worrying signal that they may not meet commitments.
Exacerbating a normal “buy the rumor, sell the fact” selloff, these comments sent agricultural markets tumbling, as the long-awaited deal may fall short of hopes. Soybeans, one of the markets most sensitive to Chinese demand, dropped over 20 cents per bushel to a one-month low, trading Friday for $9.25 per bushel.
Hot Housing Lifts Lumber
The highest housing starts in 13 years followed Thursday’s release of strong jobless claims numbers, Chinese industrial statistics, and the continued rally in stock index futures.
Specifically, December new home starts soared by 17 percent to 1.608 million, well above what analysts expected, and building permits rose by 1.416 million. Lumber prices have been on a sharp rise since July and surged to new highs Friday shortly after the data were released.
Continued low mortgage rates and strong employment drive the demand for housing and, hence, the price of 2x4 framing lumber. Copper too, used for electrical wiring has been rising during the same six-month period.
Though many pundits, elected officials, and analysts delight at these splendid statistics, others point out that the housing starts figures were skewed by large multi-family starts indicating that fewer and fewer folks can afford to buy a home. The late morning price of random length lumber for March delivery stood at per $435 per thousand board feet.
Opinions are solely the writers'. Walt and Alex Breitinger are commodity futures brokers with Paragon Investments in Silver Lake, Kan. They can be reached at 800-411-3888 or paragoninvestments.com. This is not a solicitation of any order to buy or sell any market.