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An Update on Exports to China and Potential Impact on US Agricultural Profitability

Listen Here: Profit Matters 10-4-16

by Ken Root 

We are sitting in a major surplus situation in the United States. The hog inventory has spiked to over 70 million head.  Hog Futures were the biggest loser in commodity trading over the past year. Cattle numbers also going up and live cattle futures dropped under one dollar per pound for the first time going back several years.

Then we turn to the corn crop, a likely 15.1 billion bushels if harvest proceeds without more difficulty and soybeans had the year of years now projected to be record large, some say 4.3 billion bushels.

All this means China can get raw commodities and value added meats quite economically and yet, the country is signaling it will impose tariffs to protect its growers. Also, it is looking for new regional suppliers of fruits.

A trade official at China’s Agriculture Ministry said it might be necessary to introduce anti-dumping tariffs and other measures to curb imports and protect domestic production. Pro Farmer’s First Thing Today reports trade officials in China have long talked about protecting China’s agricultural industries, both to ensure food security and to alleviate poverty, which is most prominent in China’s rural areas. However, one industry contact questioned the potential moves, questioning “they want to protect their domestic industry and their consumers?” Noting that  import protection leads to higher prices, the source said the talk “sounds more like jawboning prices down further.”

Demand for fruit in China continues to rapidly grow and U.S. exporters are fighting for market share. A report by the Department of Agriculture shows exports rose threefold to 3.8 million metric tons in 2015, representing nearly seven percent of total market share by value. Politico says that while the U.S. continues to be a major supplier of fruit like bananas, grapes, oranges and apples to China, it faces increasing competition from both Chinese growers and neighbors of Thailand, Vietnam and the Philippines. Combined, those three countries supply more than half of China’s fresh fruits each year. Still, USDA researchers say the export outlook to China remains good as the nation carries out a five-year plan to move citizens from rural areas to cities and modernize its agriculture industry. Analysts say the move means consumers will have more purchasing power.

That’s the way the market works, good for some, bad for others, but it also cycles. When China needed soybeans and the US had smaller crops, they paid very high prices for years to satisfy their needs.