The trade dispute between America and China affects the global agricultural sector
Dr. Bob Fairclough evaluates the market situation
US President Donald Trump threatens to further increase US import duties on Chinese goods. Kleffmann Groups expert Dr. Bob Fairclough, Principal consultant of AgriGlobe, gives a brief and easy evaluation of the market situation:
Trumps “tactical twitter tweet” threatening additional tariffs might, hopefully, just be one more layer of strategy to pressure the Chinese government into speeding up the process of coming to a trade deal and so balance the trade deficit that Washington has with Beijing. In this game of “who blinks first”, however the stakes are especially high for agriculture; if this tactic backfires into a no-deal type situation.
... the American agricultural sector?
American growers are going to be hit initially on two fronts. Just as the US corn belt is beginning to dry out and farmers are in the midst of planting there may well now be a few less acres planted to soybeans in the light of this latest “tactical tweet”. China accounts for a vast proportion of the US export volume of soybeans in a normal marketing year (so in 2017 it was 60 % of all exports) and US farmers will think twice about planting those ”extra acres of soybeans” now that this main export market is once again under threat. Even before this “tactical tweet” it was not all “roses” and although China was indeed once again signing contracts for US soybeans the shipment were very slow. Whether or not at this stage, US growers will be able to plant corn instead of soybeans or indeed the situation will lead to even more “preventative plant acres” than currently estimated is unsure. The second front to hit American farmers will be a significant raise in Crop Protection Prices as the extra level of tariffs will now be passed onto growers on all imports of raw material, technical intermediates and indeed finished Crop Protection Products originating from China.
... the Chinese agricultural sector?
Like the American farmers the Chinese will be hit on two fronts. Already reeling from the “Blue Sky Programme” implemented by the Chinese government in 2018 Chinese growers are seeing an increase in prices of crop protection products as well as in some case a shortage of those products. More tariffs on that product exported to the US will only exacerbate that trend. But more importantly China has got addicted to US soybeans imports in recent years and an escalation of the “trade war” is only going to put additional pressure on Chinese growers to “fill the shortfall”. An opportunity in some ways yes; but China is not necessarily the best place to grow soybeans; at least not efficiently, and this refocus will put additional pressure on growers of the core crops of rice, cereals and maize. The outbreak of African Swine Fever, reducing the Chinese pig herd by an estimated 20 % in 2018/19 reduced that pressure this last year but once the herd is re-populated the shortage of soybeans to feed it and in turn the growing demand for pork in China will once again materialise.
... the global agricultural sector?
Significant changes in the way trade flows. China is still importing US soybeans; just via Argentina as processed oil. This in turn puts pressure on Argentinian farmers. The EU now faced with a lot of more imports of “dumped” soybean oil which puts pressure on already pressured growers of EU oilseed rape. US trade looks for new markets such as Pakistan; putting pressure on Indian/US relations and the Indian “Make in India” policy. Russia’s already booming soybean growers in the far east of the country gains an added bonus; but in turn puts pressure on growers of the core crop wheat hurting export potential which in-turn allows French wheat to once again compete in global markets such as tenders from Egypt. The scenarios are indeed quite endless; so best all round if Trumps “tactical twitter tweet” is just that; and just a means by which Trump is “stirring the pot”.