Friday, 15 February 2019
By Christian Edwards

China's 'soybean diplomacy'

Christian EdwardsLast week, in another taste of "soybean diplomacy," China intended to surprise — and please — US President Donald Trump with a promise to buy more American soybeans.

Market

 

The setting was the Oval Office, and this time the gift bearer was Vice Premier Liu He, China's lead trade negotiator, who told Trump that China was in for another 5 million tons of soybeans after state-directed firms made three significant purchases in and around Christmas.

The move, which the Trump administration has considered progress, earned China's top economic adviser this praise from Trump:

"(Liu He) is one of the most respected men in Asia, one of the most respected men in all of China," Trump said on January 31, calling him "one of the most respected men anywhere in the world."

But as the South China Morning Post has said, the promise doesn't solve a bunch of problems for US farmers.

The state of play is simple. American soybean exports to China, the world's dominant importer, have been smashed this season as a direct result of China's targeted duties.

Those duties remain in place, and US grain analysts have beenstruggling to understand the movements of soybean trade, a situation compounded by the recent US government shutdown that carried on for more than a month.

China is a soybean monster. Last year, according to customs data, China imported 88 million tons of soybeans, slightly down from 95.5 million in 2017. China is the only country to hold a strategic pork reserve.

The result for US producers is that this year, soybean prices have been walloped and their major buyer has sought and received millions of tons of produce from competition, such as Brazil and Argentina.

Now, for the short remainder of the harvest season, the chance to sell to China is closing as Brazil, a major player in the market, has already begun harvesting its 2019 crop.

So, China's somewhat unsurprising gift this week of a promise to buy more US soybeans has done little to brighten a dim outlook for American soybean farmers.

The fact is, soybeans are quickly becoming a proxy for the current state of health for US-China trade relations and the progress of trade negotiations. And soybean exports to China have gone from more than 23 million tons in 2017, to just 5 million in 2018.

China's purchases of the 2018 harvest are a fraction of the country's typical purchases from the US, according to the Department of Agriculture.

As Trump seeks to apply more pressure on his counterpart, Chinese President Xi Jinping, to change China's trade practices, US soybean farmers find themselves the ideal soft target for China's counterpunch.

Xi's 25% duty on US shipments hits the president in the vulnerable Rust Belt, where a strong contingent of US voters chose Trump in the 2016 presidential election. In his January 31 remarks after his meeting with Liu, Trump said China's soybean-purchase offer will "make our farmers very happy."

Soybean futures rose after Liu's White House promise. March soybean futures at the Chicago Board of Trade closed up 0.3% on Friday, according to the South China Morning Post, but no further than that, suggesting another 5 million tons from the US to China would not have much of an impact on global demand.

In an interview with the South China Morning Post, John Wesley Boyd, a smaller soybean farmer from "southern Virginia producing on 375 acres of soybean crop," said the gesture will not halt falling prices or replace the loss of his biggest buyer.

"I don't see the pendulum swinging back towards me as a producer in the field," Boyd said, according to the South China Morning Post.

Since the trade war's first shots last year, Brazil has assumed the US's position of China's soybean provider in chief. And done it well. Until the trade war, US farmers delivered, on average, about 30 million tons of exports to China each year.

Then last year, the South China Morning Post said, Brazil sent "the bulk" of its 80 million tons of soybean exports directly to Beijing, raising fears among American producers that these are market losses they may never get back.

China, ever cognizant of commercial overdependence, has moved to diversify its soybean sources after the US so effectively exposed China's vulnerability in relying on US producers, including ramping up domestic production and synthesizing production.

Mark Albertson, director of strategic market development at the Illinois Soybean Association, said that for US soy producers, once the last shot is fired, the Chinese soybean market for US farmers may already be dead and buried.

"We will likely not get back to where we were before the trade war started," he told the South China Morning Post. "It's not just alarming, it's terrifying."

China's absolute domination of the global soybean market has emerged alongside its demand for meat — particularly of the pork variety — as its middle-class consumers move off a rice-dominated diet to one where pork and poultry are common staples.

China's livestock numbers have risen to meet the meat demand, but it has been unable to produce enough animal feed to keep up.

 

Source : Business Insider

 

 

Post comment as a guest

Comments | Add yours
  • No comments found