To meet goals, China will be ‘ramping up’ U.S. ag purchases, says Perdue
Agriculture Secretary Sonny Perdue said he believes China will meet the goals of the Phase One trade agreement, although the USDA’s new estimate of sales — $14 billion this fiscal year — is only one third of the target. “We believe those numbers will be surpassed,” Perdue said Thursday at the USDA’s annual Ag Outlook Forum.
Phase One obliges China to buy $40 billion worth of U.S. food, agricultural, and seafood products this year and in 2021.
When asked about the disparity between the USDA estimate and the terms of the trade deal, Perdue told reporters that he expects purchases to “start … ramping up in the spring.” No large grain sales have been announced since the agreement, which de-escalated the Sino-U.S. trade war, was signed on January 15.
Drawing on published descriptions of the agreement, USDA economists estimated ag exports of $14 billion to China this fiscal year, up $3 billion from a November forecast, made before the agreement was signed. In a quarterly report released in conjunction with the Outlook Forum, the USDA estimated worldwide ag sales of $139.5 billion this year, up $500 million from its previous forecast and $4 billion higher than in fiscal 2019.
“Nearly all of that projected increase [is] due to higher projected exports to China,” said USDA Chief Economist Rob Johansson in a speech that opened the Outlook Forum.
Soybeans would account for most of the increase in sales to China, with pork and cotton sales also rising. China is the world’s largest importer of soybeans and cotton and the world’s leading pork consumer.
“The current outlook for exports to China is tempered by significant uncertainties surrounding the COVID-19 outbreak, which may affect the timing of China’s purchases under the Phase One Agreement during the calendar year,” said the export report.
China has not asked for a delay or for flexibility in meeting the Phase One goals, said Michael Ward, senior U.S. agricultural attache in Beijing, during a panel discussion.
Jason Grant, an associate professor at Virginia Tech, said it was still possible for China to meet its commitments. It could satisfy half of the $40 billion target with larger imports of six commodities, including soybeans, corn, wheat, pork, and beef, he said, before categories such as seafood are considered.
“I’d call that a conservative estimate,” said Grant, considering that Australia, ordinarily a strong competitor for sales to China, harvested its smallest wheat crop in 12 years.
The USDA has cautioned that the $40 billion target is based on the calendar year but its export forecasts follow the fiscal year. Chinese purchases, it said, could appear in multiple fiscal years. Further, the USDA’s definition of ag exports does not include all the products included in the Phase One agreement.
To meet the targets, “China will have to be in the market more often and perhaps counter-seasonally than we have typically seen,” said Grant.
U.S.-China trade has been further disrupted by the effects of the African swine fever epidemic that devastated China’s hog farms, reducing demand for livestock feed while boosting the appetite for imported meats, and the ongoing outbreak of the Wuhan coronavirus, said Ward.
“The bottom line is, China must take whatever steps necessary to meet its purchase commitments,” he said.
Before the Sino-U.S. trade war, China was the largest customer for U.S. ag exports, with purchases of about $21 billion a year. The forecast of $14 billion in sales is “a LONG way from Phase One targets,” said think tank economist Joe Glauber, Johansson’s predecessor at the USDA. He later said, “You will have to have a heck of a fall to hit $36b [billion] for calendar 2020.”
The USDA projects plantings this year of 94 million acres of corn, 85 million acres of soybeans, 45 million acres of wheat, 12.5 million acres of upland cotton, and 3.1 million acres of rice. The soy, cotton, and rice figures are higher than previous USDA projections, while the corn figure is 500,000 acres lower.
Soybean prices will rise modestly for this year’s crop, said Johansson, “under the expectation of a return to normal trade with our major trading partners.”
The USDA projects record meat and dairy production this year.
The quarterly Outlook for U.S. Agricultural Trade is available here.