MORGAN, Minn. – The United States sells approximately $143 billion worth of agriculture products to other countries. For 2019, that number is reduced by about $6 billion due to the trade war.
It is no surprise that global trade, trade war and trade agreements were among the first topics addressed at Farmfest on the Wick Building stage and would continue to be brought up throughout the week.
“It's really that fluid of a situation. We really have something that is moving every single moment of every single day,” said Chris Pothen, vice president of global grain marketing with CHS during the opening session at Farmfest.
Trade negotiations remain ongoing and can change with the drop of a presidential tweet.
Pothen explains that there are three major trade agreements that need to be resolved quickly to keep U.S. agriculture competitive in the global market. The first is the USMCA, the agreement with Canada and Mexico. It needs to be ratified and approved by the legislative branches of all three countries.
The second is establishing a bilateral trade agreement with Japan.
“About two years ago, the U.S. was having negotiations to join the Trans-Pacific Partnership (TPP) and upon the administration moving in during January of 2017, we left the TPP,” said Pothen. “(The other countries involved) moved on and they ratified that agreement. We currently have an existing TPP without the U.S.”
For countries in the TPP, Canada for example, they have greater access to sell spring wheat to Japanese companies.
The U.S. can sell wheat to the Japanese government, who then marks the price up before selling it to other buyers.
“Our spring wheat farmers are losing competitiveness to the Canadians, which means they’re going to plant more corn and soybeans,” he said. “It's just one less demand point for your precious acres.”
China remains the largest market the U.S. needs to secure a trade agreement with. They buy around 85 million metric tons of soybeans off the global market. The number two buyer of soybeans is Europe at 13 million metric tons.
There are just not enough other markets available to make up what is lost by losing China as a trading partner.
For a moment, it seemed like President Trump and President Xi were starting to reach an agreement at the end of June. On July 18 and Aug. 2, two administration officials went to China to negotiate.
“During that period of time, the Chinese government came to the private buyers and said they’ll take the 25 percent tariff off for a specific amount of tonnage,” said Pothen.
As a result, there was a lot of demand on the trading floor coming from China. Pothen explained that there was activity. While it didn’t result in a lot of business, but there were some sales to China.
Then the administration officials returned to D.C., met with President Trump and he added another 10 percent tariff onto goods coming from China.
In retaliation, China restored the 25 percent tariff on agricultural goods the next day. The somewhat break in the trade war the two Presidents had reached earlier was now over and the markets dropped as a result.
As it stands, the U.S. has exported about 10 million metric tons of soybeans to China this year. That came from two big buys from China that were meant to help facilitate trade negotiations.
“We’re nowhere near where we should be as far as exports,” he said.
The resulting grain is either going into storage or being moved to different markets. Typically, soybeans from the northwestern part of the Midwest are shipped west and sold through the Pacific Northwest (PNW) market.
The PNW was built to support China’s demand for beans, so not much is being sent out via the PNW.
Instead, grain that would normally go west is going south to the Gulf of Mexico, where the market is a little better. But this change in shipping patterns disrupts the markets.
“The USMCA is close to being ratified, we need to get it ratified. Japan and the bilateral trade agreement, we need to get this thing taken care of,” said Pothen. “The long-term goal is still very good with China. The 10-year outlook for China is they’re going to be a very good demand source for not only soybean, but also ethanol.”