US farmers already losing out from US's tough stance with China


Don’t forget about China-US trade tensions.

The threat of an all-out trade war between the world’s top two economies has shrunk from headlines last week to footnotes now, on hopes of the countries finding a resolution.

But ag investors, in particular, should remain alert to market conflict.

After all, in ag, strained China-US relations are already causing price anomalies, and could trigger production distortions too if they are not resolved soon.

Paranagua vs Gulf

US farmers are already losing out to President Donald Trump’s tough stance with Beijing.

In the soybean market, Chinese buyers, the world’s top importers, have increasingly turned to Brazil for supplies fearful of orders from the US falling foul of Beijing retribution.

Trade data earlier this week underlined the trend, showing Chinese soybean purchases from the US last month down 24% year on year, while those from Brazil soared 154%.
That clamour for Brazilian beans - preferred also for worries that drought will sap supplies from Argentina, the third of world’s big three soybean exporters – has driven prices in the port of Paranagua to R$80.56 per 60kg sack as of Thursday, according to data held by Cepea.

That was the highest in 18 months, and only partly down to weakness in the real, which has boosted the value in local terms of assets priced internationally in dollars.

In dollar terms, Paranagua prices were up 2.2% week on week, compared with a 0.9% dip in Chicago soybean futures, with Reuters reporting Parangua export values as holding an $11-a-tonne premium to those from US ports in the Gulf of Mexico.

‘Chairman of the Australian Sorghum lobby’

In the sorghum market, meanwhile, traders in Australia have termed Mr Trump “the chairman of the Australian Sorghum lobby”, after his decision in February to impose tariffs on US imports of Chinese solar panels and washing machines.

This prompted Beijing to launch a probe into Chinese imports of sorghum – of which Australia is the second-ranked exporter to China.

“The Chinese throw up the barricades to US sorghum quicker than you can say ‘get me Australia on the phone’,” traders at China-owned Cofco International Australia said three weeks ago.

The Australian sorghum price was, at the time, “now Aus$40 higher than it was a month ago, the Chinese are buying, the crop got a reprieve from Mother Nature and we were all booking plane tickets to China”.

Prices had risen a further Aus$5-15 per tonne since, to Aus$308 per tonne in the inland New South Wales market of Narrabri, up to Aus$335 per tonne in the port of Newcastle, according to merchant AgVantage on Thursday.

Acreage impact?

Significantly, such market moves are coming at a particularly sensitive time of year, with US farmers mulling which spring crops to sow.

Changing price incentives could encourage farmers to shift land to crops less sensitive to a China backlash, altering the make-up of the US ag export offering for 2018-19, however Beijing-Washington relations pan out.

Area of cotton, sorghum and soybeans, for instance, all big Chinese imports from the US, could end up lower than suggested by a US briefing on spring crops released later on Thursday, but based on data taken early in the month.

Front line

And all for what?

A frustration for US farmers is that they are bearing the brunt of China’s wrath, with agricultural commodities accounting for the vast majority of the 128 US products on which Beijing last week threatened import tariffs.

Yet it is US industrial sectors which look the primary beneficiaries of Mr Trump’s offensive.

China is certainly not a paragon of fair trade in agriculture, as in other sectors, appearing to drum up, on suspect grounds, objections on grounds of antidumping or contamination with unapproved genetically modified seed when it suits to hamper imports.

It maintains, for instance, a ban on imports of US poultry, on grounds of avian flu, despite the World Trade Organization acknowledging the US as free of the disease.

Mr Trump should make resolving this kind of dispute a priority for trade talks with Beijing.

At the moment, the drive to put America first appears to be leaving its farmers a distant second.


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