Perfect storm rages through US agricultural landscape

Things seemed to be going better for American farmers. The hatchet between the US and China was finally buried on January 15 this year with a tentative trade deal. It should have revitalized the export of American agricultural products. A new beginning in the strained relationship between the two countries. It all turned out differently.

The joy after signing the trade deal was short-lived. A perfect storm in 3 acts swept through the American agricultural landscape. African swine fever in China, the coronavirus from China and the highly competitive Latin American grain markets further forced American farmers on the defensive.

For years, Chinese pigs chewed up a lot of protein-rich American soybeans. Then a virus appeared in China. African Swine Fever (ASF) was first reported in the city of Shenyang in early August 2018. A year later, China's pig population had nearly halved. And when you consider that China had more than half of the world's pig population in 2018, the ASF epidemic killed nearly a quarter of the world's pigs. ASF outbreaks are still being reported in China and abroad, but the number is lower than in 2019. It has hit the demand for soybeans and the US agricultural sector hard.

Corona, oil and grains
The global spread of the corona virus from January and the oil price shocks in March have resulted in lower grain prices. The abrupt sharp drop in oil prices hit demand for corn and soybeans above average. These raw materials are also used in the production of renewable fuels, such as ethanol. The demand for wheat was slightly less affected by the corona virus, as consumers, companies and countries went out build up stocks from a strategic point of view.

Latin American agricultural salsa
The Latin American grain market is swinging. The production of cereals has increased by no less than 20% in three seasons. The acreage has grown strongly in recent years, especially in Brazil and Argentina. While this has often been at the expense of vulnerable areas, it has also made countries highly competitive in global agricultural markets. And a lower price is always very tempting for China.

The sowing of wheat, corn and soybeans in the US takes place from April through June. The number of hectares differs little from a year ago and will even increase next season. This will fill the American silos to the brim this summer. It remains to be seen whether the demand for grains will have recovered by then. The perfect storm has not yet passed and this will keep demand weak for a while. If we add to that a 10% annual increase in US grain production, oversupply continues to dictate the market.

Casper Burgering
Senior Economist Industrial Metals & Agricultural Raw Materials ABN Amro. This column was previously published in De Telegraaf.

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