WASHINGTON—The partial trade agreement with Beijing brings relief to U.S. farmers who rely on China as a crucial market for soybeans, sorghum, pork, and dairy.
China is reportedly pressing ahead with large purchases of U.S. farm products. Early this week, media reports surfaced claiming that Beijing would offer a tariff-free quota of 10 million tonnes of U.S. soybean imports.
The quota will be provided to state-owned and private soybean processing companies, as well as major international trading houses with processing plants in China.
It would be “wonderful” if the news of China making big purchases “comes to fruition,” said Naomi Blohm, senior market advisor at Total Farm Marketing, a commodity brokerage and consulting firm based in Wisconsin.
“That would be a new demand for our farmers. That would be a reason to see soybean prices stay firm or maybe work higher, which would really help the farmers throughout the Midwest.”
The quota news came after the so-called “phase one” trade deal between the United States and China announced on Oct. 11. According to the deal reached in principle, Beijing agreed to buy up to $50 billion of U.S. farm products annually.
The Chinese government confirmed on Oct. 23 that it would increase imports of certain products, including agricultural goods, as part of its efforts to stabilize foreign trade, according to Chinese state television.
Chinese buyers have turned to Brazil because of a delayed harvest in the United States resulting from bad weather conditions, Blohm explained.
“The United States is behind because of rainy spring, rainy summer, and rainy fall. We don’t have beans right now to ship out,” she said. “So that’s probably why they bought from Brazil.”
‘Optimism and hope’
China has bought more than 3 million tonnes of U.S. soybeans since resuming purchases in early September, according to data by the U.S. Department of Agriculture. Soybean futures climbed in recent weeks as a result.The new trade deal has lifted optimism and hope among farmers, said Blohm, but the agriculture community has “heard this song and dance before and nothing has ever really happened. So we’re anxious to see what comes out of the meeting” in Chile in November.
President Donald Trump earlier said that the first phase of the trade deal might be signed at the Asia-Pacific Economic Cooperation forum in Chile’s capital, Santiago, in mid-November.
The trade war has pushed down the price of U.S. soybeans this year as demand from China dropped. Beijing began imposing retaliatory tariffs on U.S. farm goods in July 2018 and halted soybean purchases from the United States a few months later. This year, Beijing imported small portions of U.S. soybeans to show good faith during the trade negotiations.
Price Rally
In recent weeks, there has been a substantial rally in the price of soybean. Soybean futures increased about 90 cents since it bottomed out at nearly $8.50 a bushel in early September, according to Joe Vaclavik, president of Standard Grain, a Tennessee-based commodity brokerage firm.“It’s not all because of China. China’s return to the soybean market definitely has something to do with it. Also, we’ve had crop problems” in the United States, he said.
“We’ve had a very difficult growing season here. Plantings are late. Soybean acreage is down sharply. Yields are going to be down sharply,” he said, adding that the crop “appears to be getting a little bit smaller than what we thought originally.”
There’s a continued weakness on the demand side as well, and it’s not just because of the trade war. Chinese soybean imports are expected to drop by more than 10 percent this year compared to its peak in 2017.
“A lot of what’s happened in the last two years now has to do with this African swine fever,” Vaclavik said, adding that soybean meal fed to hogs dropped sharply as a result of the epidemic that killed nearly half of China’s hog herd.
Pork Exports
The soaring price of pork is forcing China to import more meat from the United States and other countries. U.S. pork exports to China surged 71 percent in September, according to Blohm.And pork prices in the United States are expected to go up if exports to China continue.
“We have really increased our pork production to record amounts. So we are betting on these exports happening. So if they don’t happen, we would have a surplus of pork in this country,” she said.
So far this year, China has bought 20 million tons of soybeans and 700,000 tons of pork from the United States and will ramp up its purchases, according to a spokesperson for China’s Foreign Ministry. The details of the deal announced by the U.S. side were correct and consistent with what Beijing had agreed on, the spokesperson confirmed on Oct. 15.
Under the terms of the partial deal, China’s purchase of U.S. farm goods will scale to an annual figure of $40 billion to $50 billion over two years. This almost doubles what China has been historically buying each year. The new deal will likely benefit producers of soybean, sorghum, dairy, and poultry the most, according to trade experts.
