Volga Baikal AGRO News Update on the American and Chinese Trade Policy !!!
U.S. – China relationship has never been stronger.
Through the trade war and open hostilities at the highest political levels, pig farmers in China and crop farmers in the U.S. have become increasingly interdependent. Already America’s biggest customer of soybeans and sorghum, for this season China bought an unprecedented 11.2 million metric tons of corn, up nearly 1,300% compared with pre-trade-war purchases.
For the moment, both sides seem happy. The American imports have helped China feed its hog herd, which is recovering faster than expected after the African swine fever outbreak created a shortage of the country’s most staple protein. Meanwhile, U.S. farm profits are at a seven-year high, riding China’s demand and additional support from federal aid to agriculture.
China’s bought nearly 30 million metric tons of U.S. soybeans, the most for this point in the season since 1991 and 57% of America’s export sales. For sorghum, which is also a substitute for corn, China accounts for 80% of sales. Corn purchases, once negligible, rocketed to almost 30%.
But the deeper reliance is tenuous. As the trade war showed, that market can quickly evaporate, and experts warn that any number of geopolitical events – an incident in the South China Sea, for example, or further activity in Hong Kong – could end with another chill on Chinese imports.
“American agriculture has to be careful of putting too many eggs in the China basket,” said Tom Vilsack, who served as Agriculture Secretary from 2009 to 2017 and has emerged as a leading candidate for the position under President-elect Joe Biden. “I think the lesson that should be learned from the last couple of years is the need for American agriculture to continue to diversify so there’s always somewhere else the products can go, other than the storage bins.”
For now, purchases are so big that traders are even drawing parallels with the Soviet era’s “Great Grain Robbery,” another huge agricultural trade at a time of tensions between superpowers. Overall, the U.S. has nearly exhausted its export capacity.
“We are loading boats as fast as we can,” Gregg Doud, the U.S. Trade Representative’s chief negotiator for agriculture, said in an interview with Bloomberg at the end of October. “North of 95% of what can possibly be done in 2020 is already booked, and a huge chunk of that is soybeans to China.”
China has already bought so much corn from the U.S. and Ukraine, traditionally its biggest supplier, that imports this year exceeded for the first time the 7.2 million ton quota set by the World Trade Organization. The USDA’s Foreign Agriculture Services expects China’s purchases to triple to 22 million tons this season.
Those are the projections that will inform U.S. farmers as they decide how to allocate their land for the 2021 growing season. Behind closed doors, American executives worry that they’re at a disadvantage. China closely guards the status of its reserves, and only its state-owned enterprises understand the full scale of the country’s demand. Typhoons in the northeast could have done serious damage to the country’s harvest or, as its agriculture minister said, this year could see a bumper crop. The amount of corn subject to lower tariffs is also opaque.
Les Finemore, chief investment officer at commodity hedge fund Imbue, drew a parallel with what’s known as the Great Grain Robbery of the 1970s. Hiding a severe domestic crop failure, Soviets bought millions of tons of American wheat in a frenzied spree, driving global prices higher and heavily contributing to inflation in the U.S.
In China, the goal is self-sufficiency. President Xi Jinping visited a corn farm in Jilin in July, urging local authorities to protect the fertile soil in the region. If the country can improve its yield by 2.5% per year, it could meet domestic demand by 2029, according to Xu Weiping, a chief analyst with the agriculture ministry. The country is reallocating land from non-grain crops to corn. ChemChina also acquired Syngenta in 2017, and plans to use genetically modified crops and other technologies to help get the country to 90% self-sufficiency.
Even if the political relationship sours, China has been developing its global supply chain. As part of its Belt-and-Road Initiative, it has heavily invested in Brazil, the world’s top producer of soybeans, and in the Black Sea region. It has also developed its own commodity-trading powerhouse, with the acquisition of Noble Group’s agriculture arm and Dutch grain trader Nidera BV, now merged and renamed Cofco International Ltd.