US ag exports to China wane on stronger dollar, domestic policy
By Bill Tomson
© Copyright Agri-Pulse Communications, Inc.
WASHINGTON, March 2, 2016 -- China's much ballyhooed economic slowdown is real, but the country's internal policies and a strong U.S. dollar are often causing bigger disruptions to U.S. agricultural trade with the Asian nation, according to Fred Gale, a senior economist at USDA's Economic Research Service.
When it comes to China's import levels, the value of the dollar compared to the Chinese yuan or the Brazilian real can play a bigger role than anything else, Gale said last week during a discussion on China trade at USDA's Agricultural Outlook Forum in Arlington, Virginia.
“The high value of the U.S. dollar is a disadvantage to U.S. exporters in the Chinese market,” Gale said.
China may have been closing up factories across the country, but imports of some grains and oilseeds were growing steadily last year - just not from the U.S, he said at the forum and in a subsequent interview.
China is still the largest foreign market for U.S. soybeans and U.S. exports are still strong, but for the time being a lot of U.S. farmers are holding on to their crops rather than trying to compete with Brazil and other exporters, Jim Sutter, CEO of the U.S. Soybean Export Council, told Agri-Pulse.
“We have a situation where producers in South America are enjoying the benefits of a depreciated currency,” Sutter said. “The prices that they're getting are at almost record-high levels. So farmers in South America are very anxious to be sellers, but in the U.S., farmers are resisting selling at these low prices… Farmers in the U.S. have added storage capability.”
U.S. soybean exports to China fell about 11 percent in 2015 while overall Chinese imports are expected to increase by about 3 percent, according to USDA data.
China is also searching for other bargains outside the U.S., Gale said. China once bought most of its pork from the U.S., but now the European Union has become its largest supplier. Currency rates play a role here too, Gale said, but an even bigger factor is the abundant supply in the EU after Russia cut off imports.
And the situation gets even more complex with China's cotton-buying.
China's imports of U.S. cotton also continued to be weaker than they once were, but again the Chinese economic slowdown is not the main culprit.
It may sound counter-intuitive to many, but the Asian giant's decreased imports over the past several years have little to do with demand, Gale said. China's domestic consumption peaked in 2009 and 2010, but it wasn't until a few years later that imports skyrocketed to record levels.
“The peak in consumption does not correspond to the peak in imports,” Gale said. “In fact, imports were not driven by consumption. They were driven by a Chinese policy which supported domestic prices and attracted imports.”
The higher Chinese prices attracted a frenzy of exports from around the world, including the U.S., for about three years until China eliminated the support program, Gale said.
“Now they are allowing prices to fall and they are cutting cotton imports to try to offload their stockpile,” he said.
China bought just 2.7 million bales of cotton in 2014 from the U.S., less than half of the 6.3 million bales it imported in 2011, Jody Campiche, vice president of economics and policy analysis at the National Cotton Council, said in an interview.
The USDA in February reduced its forecast for U.S. cotton exports by another 500,000 bales for the 2015-16 marketing year, bringing the department's prediction for foreign sales down to just 9.5 million bales and pushing up domestic stocks.
And it's about to get worse, Campiche said.
China has been holding massive stocks of cotton for years and the country is getting ready to release some of those reserves as early as this spring onto the domestic market, pushing the country's need for imports even lower.
Chinese corn prices, on the other hand, are very high - almost double what U.S. corn farmers get for their crops - but that is not stimulating imports from the U.S., USDA's Gale said.
The government is taking a lot of that very expensive and subsidized corn off the domestic market and pouring into storage. That's making the way for much cheaper imports, he said, but not from the U.S.
“The Ukraine is now the dominant corn supplier to China with over 4.5 million tons last year,” he said.
While U.S. corn exports did not rebound after China rejected millions of tons of corn in 2014 because the country said it found traces of an unapproved biotech trait, it has begun drastically increasing imports of other grains like sorghum.
China bought $2.1 billion worth of sorghum from the U.S. in 2015, up from $1.5 billion in 2014 and $95 million in 2013, according to data from USDA's Foreign Agricultural Service. Before 2013 there were no U.S. exports at all.
And that's very good news, said Bryan Lohmar, the China director for the U.S. Grains Council, who said the country's feed industry will continue to grow and need more grains from the U.S.
“I'm very optimistic about China's economy and about China's future food consumption,” said Lohmar, who stressed that in 2015 alone the country imported 40 million tons of commodities like sorghum and barley for feed or industrial purposes.