China and the United States seem to be friends again. About 3 years after the start of the trade war between the two countries, China is again the largest customer of the United States. The United States exported even more agricultural products to China last year than before the trade war. American analysts are therefore looking at the coming period with a positive view.
About 3 years ago, the bureaucratic trade war between the United States and China started. Then-President Donald Trump was the instigator of the grumbling between the countries. Trump aimed to equalize the trade deficit with China. In short, it meant that China had to import more products from the United States and the United States had to import less from China. To achieve this, the former president imposed a series of import duties. The plan did not go down well with the Asian superpower, resulting in counter-levies. From levies on electronics and aircraft parts to soybeans en pork.
Ultimately, both countries came to the conclusion that the tug-of-war had no positive impact on their domestic economies and a 'ceasefire' was agreed. And since then, agricultural exports from the United States to China have actually been going well. Last year, exports even increased to 55,5 million tons. This means that 25% of total American agricultural exports went to the Asian superpower. This is evident from figures from the United States Department of Agriculture (USDA). Analysts report that the Chinese are now importing even more agricultural products than before the trade war between the two countries.
Soybeans are the biggest winners
The revival of friendship between the United States and China is good news for the American agricultural economy. In 2018, the year the trade war started, soybean exports to China fell by as much as 74% in volume. Prices plummeted and the government was forced to develop a more than $23 billion aid program to support distressed farmers. In addition, there was pressure to find buyers in Europe and Southeast Asia, a time-consuming and complicated task.
China's efforts to rebuild its hog herd have reignited China's appetite for soybeans from the United States in recent months. Last year, exports increased by 53% compared to the previous year. It is the second highest volume and also means that more than 50% of the total soybean exports went to China. Corn exports also rose to a new high.
That trend continues this year. In the first 8 weeks of the year, the Chinese imported almost 3 times as many American soybeans as in the same period a year earlier. Oilseed prices have also risen by 64%. As a result, analysts expect U.S. farmers to sow a record 183 million acres this spring.
Positive look ahead
The expectation from the American grain trade is that demand from China will continue in the coming months. “This is not a 1-year phenomenon,” Ray Young, chief financial officer at grain trading company Archer Daniels Midland, said at a conference last week. Cargill previously said it would pump $475 million into its U.S. soybean facilities and expand processing plants in Ohio and Iowa.
Yet some are also hesitant. Pig farmer Brian Pridgeon from Michigan said that purchasing pork in China is very good, but also makes a valid comment. "What if China gets its own production back in order and the domestic pig herd is back up to standard? We cannot rely on one partner alone." And as always with great powers, the bucket can just be hit again by the last drop.