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Export Outlook Hinges on China
By Chris Clayton
Friday, February 19, 2021 3:54PM CST

OMAHA (DTN) -- U.S. agricultural trade and sales growth will continue hinging on the growth of sales to China, which USDA forecasts will hit another record for the fiscal year.

USDA is forecasting a boost in sales to China, reaching a record $31 billion for fiscal year 2021. Trade overall for FY 2021 will reach $157 billion, an increase of $21 billion from FY 2020, or about 13.3% higher for the year. The fiscal year for 2021 runs from Oct. 1, 2020, to Sept. 30, 2021.

"The best news for a salesperson, we're selling more and we're selling it at higher prices," said Jason Hafemeister, the secretary's trade counsel for USDA's Trade and Foreign Agricultural Affairs.

USDA provided some forecasts for trade as part of the U.S. Agricultural Outlook Forum, which is virtual this year. USDA on Friday will release some updated outlook forecasts for specific crops and livestock for production and sales in 2021.

"Trade, particularly to China, is going to be a key element for 2021 for the crop and livestock sectors," Meyer said.

FOUR LEADING COMMODITIES

Pointing to overall income drivers for agriculture, sales of corn, soybeans, cattle and hogs will remain big drivers. "So, these four commodities, not coincidentally, the commodities that China is also demanding from us significantly, that are leading the rebound in cash receipts," Meyer said.

China's demand is defying expectations with crops such as corn. China's low tariff rate quota (TRQ) annually for corn currently is 7.2 million metric tons. Everything above that TRQ can face import duties as high as 65%. Multiple economists noted China now has at least 11.4 million metric tons (mmt) of outstanding corn sales on the books through the Aug. 31 marketing year for U.S. corn. That's a level never seen before.

"What is on the books from the U.S. to China -- just from the U.S. to China by the end of August -- is already way above the TRQ," said Seth Meyer, USDA's chief economist. "So, an expectation there is that demand will continue for corn and for beans as their herd rebuilds."

The swine herd rebuilding in China is also a reason pork exports to China have weakened since last year as the country is recovering from African swine fever in its hog population and modernizing production practices as a result.

IS CHINA STOCKPILING?

Asked about China possibly stockpiling, Meyer noted Chinese buyers remain in the market even as prices are rising. Chinese demand so far has not been rationed because of higher prices for U.S. commodities because the internal prices in China are even higher.

China's average wholesale price per ton of corn was just under $450 per metric ton in January, while the U.S. Gulf FOB for corn was just under $250 per metric ton. The trade deck could shuffle, however, depending on the size of Brazil's corn crop and demand for it.

For the 2020 calendar year, sales to China reached $27.2 billion. China did not meet its phase-one trade agreement expected numbers for agriculture of $33.4 billion, but agricultural sales were stronger than manufacturing or energy sales that also were promised as part of the phase-one deal.

PHASE-ONE DEAL IMPACT

"Overall, that phase-one deal did not work out particularly well. Agriculture is actually one bright part of that," said David Dollar, a senior fellow in foreign policy at the Brookings Institution.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, pointed out most tariffs between the U.S. and China from 2018 and 2019 remain in place. Tariffs still cover more than half of bilateral trade between the two countries. "The way I look at this thing was kind of a truce in the trade war," Bown said.

There are other trade sales to China that could see gains, but tariffs remain an issue. Ethanol could see sales as high as 200 million gallons to China, but trade is still hindered by significant tariffs. "Removing those kinds of barriers could turn this into a $1 billion market for us," Hafemeister said.

CHINA GROWTH PROJECTIONS

Economists were surprised at some of the long-term growth projections for sales to China during the next decade. Just 10 years ago, China was importing about 1 mmt of meat, but China hit 9 mmt of meat imports overall in 2020, and growth in Chinese imported meat will continue. China will be both the world's largest pork importer and beef importer.

Economists noted there is no clear direction currently from the Biden administration on where it will go with trade and China. Part of the problem there is the nominee for U.S. Trade Representative, Katherine Tai, has not had a confirmation hearing in the Senate yet. Tai might not see a vote on her nomination until mid to late March.

Biden's team has talked about partnering with allies to deal with China. Dollar noted in his discussion that many of the same issues remain regarding China, including the strong influence of its state-owned enterprises, forced technology transfer and not respecting foreign intellectual property. Yet, the European Union also has a new economic agreement with China. "Europeans have a more positive view of the relationship," Dollar said.

Other countries, though, also have their rough spots with China. After criticizing China about the pandemic, Australia saw complications with sales to China increase and certain exports cut off. Overall, though, compared to competitors such as Brazil and Argentina, the U.S. has a "rockier relationship," Dollar said.

Looking at challenges dealing with Canada and Mexico, Bown said the biggest issue now is that the U.S. has not allowed Canada to import COVID-19 vaccines. Canada doesn't have the capacity to produce vaccine to meet its need and is forced to rely on imports from Europe. This has become a trade issue for Canada, he said.

"Their largest neighbor is not exporting to them any vaccines," Bown said. "I find this somewhat amazing, given how integrated economically the North American supply chain is," Bown said, adding that the U.S. is not showing proper concern for its immediate neighbors.

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN


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