Wednesday, January 22, 2020

Economists doubt Chinese will uphold ag trade deal, citing bumper soybean crop in Brazil, swine fever in China

"There’s mounting skepticism that China will fulfill its pledge to buy huge sums of U.S. farm goods under the new 'phase one' trade deal with Washington. Trade analysts see the proposed export numbers as unrealistic, and any flare-up in hostility could throw a wrench into the limited agreement," Ryan McCrimmon reports for Politico's Morning Agriculture.

The trade deal, signed last week, preserved tariffs on both sides and stipulated that China will buy $80 billion in U.S. farm products over the next two years. But the agreement comes with a big loophole: China said "higher imports from the U.S. must be based on market demands, comply with World Trade Organization limitations and not affect imports from other nations," McCrimmon reports. "It’s hard to square those conditions with an outright promise to buy a set level of farm goods, along with other products and services. Unless there’s a surge in Chinese demand, which is unlikely, the uptick in purchases from U.S. producers would have to come at the expense of those in other countries."

American soybean growers could be especially hurt, since they have to compete with cheaper soybeans from Brazil's record harvest that will hit the market in February. One analyst said China has already bought half the soybeans it normally needs this year from the upcoming Brazilian harvest. And China may not buy as much soy as it normally does because African swine fever has killed millions of Chinese pigs, lowering the demand for soybeans used for animal feed, McCrimmon reports.

A new report from the nonprofit, nonpartisan Peterson Institute for Economics said China's agricultural commitments appear to be "even more unrealistic than first believed. … Even worse, hostilities might renew, leading to a re-escalation of trade tensions currently on hold."

Jason Grant, an associate professor at Virginia Tech who specializes in agricultural trade, told McCrimmon that, in order to uphold its promises, "China will have to purchase U.S. agricultural products earlier and more often in 2020 and 2021 than we are typically accustomed to seeing." But, he said, if the agreement holds up, it could set records for ag exports and increase crop prices that have depressed for years by overproduction and the trade war.

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