FORT COLLINS, Colo. (Reuters) - Thursday’s media report that China has agreed to buy a certain volume of U.S. farm goods provides only lukewarm assurance to the agriculture market, which has been waiting for a resurgence of U.S. exports to the East Asian country.
While the agreement suggests that trade tensions are easing and that a deal between the United States and China may finally be close to reality after nearly a year and a half, the proposed quantity is not as attractive as what may have been anticipated, and further purchases are contingent on the final deal.
On Thursday, Bloomberg reported that if a partial trade deal is reached, China was willing to buy at least $20 billion of U.S. farm products in the first year. That is substantially less than the $40 billion to $50 billion that the U.S. side quoted when the latest round of talks wrapped earlier this month.
However, there may be some consistency among those figures as the report said purchases could rise to those higher levels in the second year if a deal is finalized and punitive tariffs are removed. Still, it was uncertain when imports would start counting toward the $20 billion.
But the $20 billion is no better than annual business prior to the trade war. In calendar year 2017, the United States exported $19.48 billion in agricultural products to China, not including fish or forestry products, which added another $4.4 billion.
The highest yearly value of agricultural exports to China not including fish and forestry items was $25.86 billion in 2012, when commodity prices were significantly higher.
In 2017, soybeans accounted for 63% of the value of U.S. farm exports to China. The actual volume was 31.7 million tonnes, the second-highest after 36.1 million in the previous year. Through August, soy shipments to China in 2019 totaled about 13 million tonnes, valued at $4.5 billion.
The next four largest product categories shipped in 2017 were cotton at 5%, hides and skins at 5%, sorghum at 4%, and pork at 3%. Together with soybeans, those five products accounted for 80% of the value of goods sent to China that year.
Those five products were still top five in 2018, but the combined share dropped to 63%. Last year’s total value of agriculture exports to China was $9.15 billion.
As African swine fever has drastically reduced China’s pig herd, the Asian country may seek relatively fewer soybeans and more pork than in years past. But the $20 billion quota does not seem to have enough room for the rest of the products that market-watchers are hoping will be snatched up, as there are plenty in the running.
Distillers’ dried grains (DDGs) were the No. 3 U.S. farm export to China in 2015, valued at $1.6 billion. A 2016 anti-dumping, anti-subsidy probe and the resulting tariffs choked off that trade, which amounted to just $41 million in 2018.
Sorghum was No. 2 in 2015 at $2.1 billion, and although those exports fell off in the following two years, an early-2018 anti-dumping investigation along with the trade war sharply curbed purchases. Shipments totaled $521 million in 2018, and through August this year, they stood at $117 million.
But sorghum and DDGs are feed ingredients, and China’s needs for those are less clear given the smaller animal numbers. That logic would also apply to other grains, such as corn and wheat, neither of which have recently been prominent with China.
Over the past five years, the average value of U.S. wheat shipped to China was $203 million, and for corn it was $96 million. Combined corn and wheat exports to China hit 2.3 million tonnes in 2017, just 7% of the soybean volume that year.
Rumors that China will soon buy large quantities of U.S. corn have circulated in the market over the past year, though it is uncertain what volume would be considered satisfying. The most U.S. corn sent to China was 5.4 million tonnes in 1995, predating competition from South America and Ukraine. For reference, total 2018-19 U.S. corn exports reached 52.5 million tonnes.
A big ramp-up in U.S. ethanol exports to China might make more sense, and this could be considered an acceptable compromise for the corn market. China has struggled to get its planned ethanol program off the ground, and cheaper imports may provide the needed boost.
U.S. ethanol exports to China peaked in 2016 at a value of $313 million.
As of Oct. 17, the United States had sold 5.7 million tonnes of soybeans to China for delivery in the current marketing year. That compares with 1.04 million a year earlier and 14 million two years earlier. The 2014 through 2016 average for the date was 16.4 million tonnes.
The U.S. Department of Agriculture on Thursday confirmed a soybean sale of 264,000 tonnes to China for 2019-20, bringing the yearly total near 6 million, much stronger than a year ago. Although critically shy of previous “normal” levels, China’s recent U.S. soy purchases and hopes for more soon have kept Chicago futures prices relatively elevated.
U.S. soybean sales to unknown destinations for 2019-20 totaled 3.6 million tonnes as of last Thursday, comfortably the lowest total for the date since 2011. This suggests that additional sales to China, or to any destination for that matter, are not masked behind the “unknown” category. A year ago, unknown soybean sales totaled about 7.5 million tonnes.
U.S. soybean sales to all destinations excluding China totaled 12.75 million tonnes as of Oct. 17, the lightest in six years.
China’s record U.S. pork purchases have also been a hot topic, though they have failed to pull lean hog futures back to the strong levels observed in April and May, when prices touched five-year highs.
Through Oct. 17, China had bought 398,827 tonnes of pork for delivery in 2019 and 194,617 tonnes for 2020. The previous current-year record sales to China for the date was 117,634 tonnes in 2016.
The United States has sold 1.53 million tonnes of pork to all destinations for 2019, some 43% above last year’s high. The 2020 sales to China happened anomalously early because the previous mid-October high for next-year pork bookings was 11,421 tonnes in 2018, and that was to all buyers.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis