Arlan Suderman, Chief Commodities Economist at StoneX, analyzes how discreet US-China trade agreements are impacting commodity markets and global supply chains.
Key Takeaways
US and China strike agreements allowing rare earth minerals and semiconductor chips to flow despite ongoing tariffs
China reports strong GDP growth, but questions remain about the reliability of its economic data
US crop conditions show potential risks that could unsettle speculative positions in commodity markets
Trade Agreements and Strategic Dependencies
Suderman discusses recent behind-the-scenes trade moves between the US and China. The agreements, which have not been publicized in detail, allow rare earth minerals and magnets to be exported from China to the US for auto production, while also granting China access to high-quality chips from US companies such as Nvidia. Suderman notes, “Nobody wanted to seem to give the details on either side. I speculated at the time that's because both sides gave up what they didn't want to give up”. China controls 90% of global rare earth processing, making these minerals critical to industries ranging from electronics to defense.
Impact on Commodities and Trade Balance
Despite the agreements on minerals and chips, Suderman is cautious about their effect on broader commodity markets. He notes that China can meet its needs for soybeans, corn, wheat, and canola from countries like Brazil, Argentina, and Ukraine. As a result, a sweeping deal that would benefit US commodity exports remains unlikely for now.
China’s Economic Growth and Reliability of Data
Turning to China’s reported economic performance, Suderman remains skeptical. The government reported 5.2% annualized GDP growth for the second quarter, but electricity output and property prices tell a different story. “I remain skeptical of these government GDP numbers and here's some of the reasons why. Historically, we see a strong correlation between GDP and growth in electricity output, but that increased by just 1.7% in June”. He highlights that retail sales growth is being driven by stimulus subsidies, which could add to China’s fiscal challenges.
Crop Conditions and Market Sentiment in the US
In the US, Suderman points to mixed signals in crop condition ratings, with reports of pollination issues emerging in parts of the Midwest. “Take that with a grain of salt because I'm seeing reports and seeing pictures of pollination issues... In some areas, we're not seeing it. In other areas, we are”. These uncertainties could prompt nervousness among fund managers holding large short positions, though Suderman does not see enough evidence for a sustained rally at this stage.
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