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The ongoing trade war begun with China this past summer has prompted interested parties in the U.S. agricultural sector to question the impact it’s had on the U.S. and global agriculture sector – and the implications for the future.

To-date the impact of Chinese tariffs on the U.S. agricultural sector has been significant. For the first five months of the new crop year – Sept. 2018 through Jan. 2019 – U.S. export sales and weekly inspection reports indicate a 38 percent decline in accumulated shipments. The United States has exported 21.5 million metric tons of soybeans through the end of January, compared with 34.7 million metric tons for the same period the previous year.

Since this past summer China, which accounts for more than 60 percent of global soybean trade, has covered its needs almost entirely from Brazil. That’s to avoid the 25 percent duty placed on soybeans imported from the United States. The United States in turn has been supplying soybeans to the rest of the world.

There is not enough soybean-import demand in other destinations to fully offset the interruption of demand from China. Through the end of January, U.S. shipments to other destinations have increased by only 8.2 million metric tons compared to the previous year, while shipments to China have decreased by 21.4 million metric tons. To-date the net decline of U.S. soybean exports amounts to 13.2 million metric tons.

In December 2018 the U.S. Department of Agriculture projected marketing-year exports of 51.7 million metric tons or 1.9 billion bushels. That represents a decline of 6.2 million metric tons from the previous year. Thus for the balance of the 2019 marketing year, U.S. exports will need to achieve a pace that gains on prior-year shipments by 7 million metric tons – just to achieve the USDA’s estimate of marketing-year exports.

China has begun purchasing a second round of 5 million metric tons of U.S. soybeans, partly to improve the trade-negotiating environment and partly to rebuild stocks. If the United States has an opportunity to increase soybean sales to China, other destinations will likely increase their coverage from Brazil. It therefore will be challenging for the United States to regain its global share without production problems somewhere else in the world.

While U.S. soybean producers are difficult to read with respect to planting intentions for the next crop, some reduction in acreage can be expected. But after a half-dozen years of expanding exports driven by Chinese demand and price levels supported by seasonally tight pipelines, grower concerns are surprisingly muted. That’s despite the fact that interior basis levels and futures spreads remain weak.

As 2019 begins the situation raises a number of key issues for stakeholders across the food and agricultural value chain – producers, exports, investors and others.

  • Are U.S. soybean and corn producers likely to decrease their 2019 planting intentions in order to mitigate future exposure and limit losses?
  • How are volumes of soybeans and other soft commodities exported from major origination markets to major destination markets likely to change in order to match the decrease in U.S. exports?
  • What are the long-term ramifications for trade flows?
  • If U.S. growers reduce their plantings of soybeans and corn, what’s the likelihood the trade war will lead to excess stocks of agricultural products in the United States as China shifts its purchases to competitive origins such as Brazil and Argentina?
  • How is the current trade war likely to affect commodity prices in the medium and long term?
  • What is the likely impact on the profitability and financial position of U.S. producers during the coming year?
  • What impact will this development have on farmland prices in the major U.S. soybean- and corn-growing regions? Will it drive institutional-investor appetite for farmland in South America?
  • How will the prospect of reduced exports of soybeans and corn in 2019 from the United States affect the ability of producers to access credit to finance this year’s crop?
  • What is the likelihood the trade war will result in an increase in farm bankruptcies in 2019 in the United States?

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Philippe de Lapérouse is a managing director at HighQuest Partners, a global strategy, advisory and consulting firm advising players operating in and financial investors allocating capital to the global food and agricultural value chains. Call 978-887-8800, ext. 365, or email pdelaperouse@highquestpartners.com to contact him.

Mark Zavodnyik, project manager for HighQuest Consulting, was previously the lead tropical-oils trader at AAK USA. Call 574-274-3099 or email mzavodnyik@highquestpartners.com to reach him.