FORT COLLINS, Colo. (Reuters) - One of the main features of last week’s “Phase One” trade deal between the United States and China was China’s alleged commitment to purchase a sky-high amount of U.S. agricultural goods, though market participants are highly skeptical, and with good reason.
U.S. officials said China’s annual purchase of U.S. farm products would jump to between $40 billion and $50 billion over the next two years, as much as double the pre-trade war values.
Such an anomalous increase is already extremely suspect, but unfortunately for hopeful market-watchers, Beijing has been unwilling to confirm it plans to purchase any specified amount of American agriculture.
Moreover, China has recently emphasized its desire to purchase U.S. farm goods based on market conditions, which is how agriculture trade generally works in the global marketplace. China does not want to hurt its domestic market by dumping an unnecessary supply of American goods on its consumers.
Chinese officials did mention in a press conference on Friday that a notable increase in U.S. agricultural purchases was planned, but what would it take to reach or surpass $40 billion, and is that even feasible?
China’s vice minister of agriculture said in Friday’s news conference that the country’s 2018 agricultural imports from all suppliers totaled $137.1 billion. Some $16.23 billion of that was from the United States.
Between 2015 and 2017, China’s U.S. farm imports were closer to $24.2 billion per year, according to the vice minister. U.S. records show the maximum annual export value of agricultural products to China was just under $26 billion in 2012.
In 2017, American agricultural exports to all destinations were valued at $138 billion, with some $19.5 billion of that to China. Some figures cite that U.S. ag exports to China in 2017 were valued at $24 billion out of a total $158 billion, and that is true when also including related products like fish and forestry items, which are not captured in “agricultural products.”
Ethanol is considered a related product, for example, and the maximum U.S. export value to all destinations was $3.3 billion in 2011. The maximum to China was $313 million in 2016, though many market-watchers believe U.S. ethanol is a great candidate for additional Chinese purchases.
But soybeans are the big-ticket item in terms of U.S. ag exports to China, and nothing else even comes close. In the 10 years prior to the trade war, about 60% of the total exported value of U.S. farm products to China came from soybeans. U.S. soybean exports to all destinations were valued at $21.5 billion in 2017.
Without a substantial increase in soybean exports, it is hard to imagine that all other exports could make up enough ground to come within firing distance of the $40 billion target. Not only is Chinese soybean demand softer than in years past due to the outbreak of African swine fever (ASF) in its hog herd, but it already has a reliable soybean supplier in Brazil.
The United States and Brazil account for more than 80% of the world’s soybean exports, but Brazil is easily No. 1 and is set to ship nearly 60% more of the oilseed in 2019-20 than the United States.
More than 75% of Brazil’s soy exports head to China, and the South American country sent about 55 million tonnes there between January and November, nearly 20% more than the United States shipped to all destinations during the same time frame.
Forcing more U.S. soybeans to China under a trade agreement would free up more Brazilian supply to other buyers, which could have a profoundly negative impact on the U.S. soybean market.
Commodity prices are extremely different today than when U.S. agricultural trade reached highs in terms of dollar values, which is another reason the U.S.-quoted figure is hard to fathom.
U.S. soybean trade maxed out in value in 2012 at $24.8 billion, when the average export price of the oilseed was $15.45 per bushel or $568 per tonne. Through October, the average 2019 export price is $9.67 per bushel, the lowest annual price for soybeans since 2007.
U.S. soybean exports totaled 43.6 million tonnes in 2012, well below the record volume of 57.8 million in 2016, when the average export price was $10.75 per bushel.
With most of the major U.S. agricultural exports, the maximum volume exported does not often coincide with the maximum export value of that product. Higher prices temper demand while lower prices add up to lower overall values.
Just to give an idea of the scope of $40 billion or $50 billion worth of U.S. agricultural goods, the maximum annual value of corn, wheat, and soybean exports to all destinations was $42.4 billion in 2011. Adding up the individual maximum years, which are 2012 for soybeans, 2011 for corn, and 2008 for wheat, would yield $49.7 billion.
For reference, the total exported value of U.S. corn, wheat, and soybeans was $36.6 billion in 2017 and $34.9 billion in 2018. U.S. corn exports were record by volume in 2018 at 69.7 million tonnes.
China’s struggles with ASF have already prompted record U.S. exports of pork to the Asian country this year with the potential for more next year. But if trying to reach a certain dollar value for exports, pork and other meat will not swing the needle enough.
In 2018, the United States exported $19 billion worth of pork, beef, poultry meat and products to all customers, just shy of 2014’s record, but shipments to China were only 4% of that total. Some $1.13 billion of U.S. pork, beef, and poultry was shipped to China in 2013, and that was 6% of the total.
Another idea is that farm equipment could be included as part of the U.S. plan to boost agricultural exports to China. But once again, historical amounts are paltry when compared with the lofty target.
According to the Observatory of Economic Complexity, the top U.S. farm equipment export is tractors, valued at $4.6 billion to all buyers in 2017. Another $3.9 billion in harvesting machinery and combines was shipped that year. But only $109 million worth of U.S. tractors, harvesting machinery, and combines was sent to China in 2017.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis