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Trump’s Sky-High Target of Ag Trade with China
President Trump is aiming remarkably high with his goal, relayed by Agriculture Secretary Sonny Perdue, of a $25 billion increase in farm sales to China, already the largest customer for U.S. ag exports. Not only is $25 billion more than double what China is expected to purchase this year, it is equal to 18% of the forecast for all U.S. farm exports this year.
“It’s not that easy to get to $25 billion,” said economist Vince Smith of Montana State University. Smith and Pat Westhoff, head of the FAPRI think tank, separately described ways that U.S. sales to China could grow. One of the pathways would not mean additional money for U.S. growers because it would mean selling more to China while scaling back on shipments to other customers.
“The president has an ambition of $25 billion more,” Perdue said last week when asked about Beijing’s commitment to make “meaningful increases” in purchases of U.S. agriculture and energy exports. USDA officials were part of the bilateral meeting and discussed ways to meet the goal. “We didn’t quite get that,” said Perdue. “We think we can grow into that amount” in two to five years. “We’re probably going to be at about half that area now as we…(start) working out details of that.” A U.S. delegation is expected in Beijing soon to continue trade discussions.
There are three scenarios to drive up the cash register total for U.S. sales to China in a few years, said Westhoff.
The first is an expansion of the Chinese market. “China could increase the pace of growth in overall imports of agricultural by buying a lot more grain, oilseeds, meats, dairy products, almonds, etc.”
A second scenario is a larger U.S. share of the Chinese market. The government could nudge importers to buy more U.S. soybeans, for example, and fewer soybeans from Brazil.
Third would be higher commodity prices. If the value goes up, each bushel of corn or pound of pork generates more cash than before.
“All of the above could play a role,” said Westhoff. For example, China’s domestic grain prices are higher than the world price so there would be a flood of foreign grain – U.S. grain included – if China removed barriers to imports. “That would raise world prices,” said Westhoff, and it would not require a doubling of tonnage to generate twice as much cash.
“The trickier one is #2,” said Westhoff. If soybean sales to China take the place of sales to other U.S. customers, the end result could be little change in total U.S. soybean sales, market prices, or sales revenue. Smith made the same point by saying, “The question is how are we sourcing these (sales) and who are we displacing?”
China might also find it a challenge to absorb a large increase in U.S. exports, said Smith. If it accelerated purchases of U.S. beef, pork, and chicken meat, it might need less livestock feed, crimping those sales. Or China could stockpile U.S. goods in the short term to avoid disruption of domestic production. “Anything is possible.”
There are ample privately held grain, soybean, and cotton stockpiles in the U.S. at present, which could be a source of exports. A long-term expansion in sales could lead to larger U.S. crops. A USDA spokesperson was not immediately available to describe how the administration expected to meet the Trump target.
Trade executives in China told Reuters that soybean processors and trading houses are well stocked with the oilseed and it would be painful to follow the government’s suggestion to buy more U.S. soybeans, the largest U.S. ag export to China. Companies stockpiled soybeans in expectation of a trade war with the U.S. Brazilian soybeans are cheaper than U.S. beans, said a plant manager. “Business is business. A crusher won’t buy beans if it’s not profitable.”
At present, China is forecast to import $21.6 billion of U.S. farm goods. The USDA is scheduled to update its forecast of U.S. exports for this fiscal year on Thursday.