China Drops to Second Place as U.S. Ag Customer

After years in the fast lane of global economic growth, China is slowing abruptly. The chain reaction will impact American farmers, especially soybean growers. China is tapping the brakes on ag imports – firmly enough to drop out of first place as the top market for U.S. exports.

“The Chinese economy is experiencing a significant economic slowdown,” says the USDA. In December, it forecast economic growth in China at 6.1% this year, lowest since 1990, with growth slowing for the rest of this decade. The International Monetary Fund, in a semi-annual report released in October, expects the annual growth rate to stabilize at slightly above 6%. By contrast, China’s economy grew at an average 10.5% annually from 2001 to 2010.

Exports of U.S. sorghum and DDGs are projected to fall sharply as the result of steps by Beijing, such as lowering the domestic support price, to encourage consumption of homegrown corn, rapidly piling up in storage due to bumper crops and large imports of feed grains. The corn surplus could climb to a half-year supply by this fall.

U.S. soybean exports are expected to decline, shouldered aside by more attractively priced beans from Brazil in the scramble for the Chinese market. China buys nearly two thirds of the soybeans on the world market. Over the past three years, soybeans accounted for 55% of U.S. farm exports to China. DDGs were the second-largest item in 2015 at $1.4 billion, followed by cotton at $1 billion. Saddled with a two-year surplus of cotton, China has slashed imports and local production.

“China is very hard to forecast now,” says economist Fred Gale, a USDA expert on China. “Overall, demand has been slow for nearly three years. Yet, demand for imports has been robust, because international prices have sunk below most Chinese commodity prices.”

Pork exports, worth $400 million in 2015, might pick up after three years of declining sales. That’s because of comparatively high prices in China for locally produced hogs and because more U.S. packing plants are approved for shipment to China.

Overall, USDA forecasts ag exports of $18.2 billion this year to China, down one fifth from $22.5 billion in 2015. Canada will claim the top spot for the first time since 2010 with imports estimated for $21.3 billon, roughly the same as the past three years. At a forecast $18 billion, Mexico would be just a tick behind China for third place.

China harvested a record corn crop last fall, up 4% from 2014, and it has limited leeway in dealing with its surplus. It cannot let prices fall too far or risk shortfalls in the future. Furthermore, the government wants to narrow the gap between urban and rural incomes. Food security is a key concern. USDA economist Gale notes in a blog that Chinese officials often cite President Xi Jinping’s statement: “China’s food bowl must remain firmly in its own hands.”

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