INTERVIEW: US sees itself as reliable agriculture supplier to China, says USDA chief economist

China views importing as a threat to its security and while the Chinese market is difficult for business, the US considers itself a reliable agriculture supplier to the country, said Seth Meyer, chief economist, and chair of the agricultural market information system at the US Department of Agriculture.

For agriculture exports from the US, there is not an obvious alternative to China, Meyer told S&P Global Commodity Insights in an interview at the IGC Grains Conference in London.

The US is a key global exporter of soybeans and corn, and about 54.3% of its outflows of beans and 12.3% of corn were purchased by China in 2023, according to the USDA's foreign agricultural service.

Talking about the possible implications of rising tensions between the US and China, Meyer said that China's policy orientation views importation as a risk to its security, be it "from anyone," citing the analogy of "having the rice bowl in their own hand."

"It kind of gets back to the same issue of 8 million mt/year [of additional production from South America], that's okay when China is growing at the same rate, but if China slows down, something else has to slow down," Meyer said, emphasizing the role of China as a major agriculture demand center.

Speaking about China's import policy, Meyer said that there are three elements, first that China doesn't like "importing at all," two, they don't like "importing from one source," and three, "state-owned enterprises import and control most of that trade."

He added that with regards to the corn market, China is buying a lot, but not from the US, given the increasing Brazilian exports to China.

"I think there is an element to China diversifying sources, but I also think that there are a lot of fundamentals in why you buy from us. Brazil is no longer a small country, but they don't have the storage capacity," Meyer said.

The chief economist added that one of the "silver linings" for the US on soybeans is its domestic biofuels policy.

Oversupply from South America?

When asked about whether South American supplies today are driving the global grains outlook, Meyer said that he wouldn't say that South America is a source of "oversupply" because no single player can be a source of "oversupply" for the global market.

"When we look at this in historic context, one can take 8 million mt of additional soybean production out of South America when China is growing at 8% usage a year," Meyer said.

He added that unless China continues to grow at that level, an additional 8 million mt out of South America would not be supported, which is the "real question here."

"We are talking about growth in carryout stocks in both corn and soybeans, which is pretty sizeable, and the Brazilians are now some of the biggest exporters, but don't stock," Meyer said.

Price volatility and margins

Reflecting on the role of managed money in driving market volatility, Meyer emphasized that "it's hard to move away from fundamentals for too long."

"When we talk about the run up in prices, we had a war in the Black Sea, and early on, we didn't know where this was going. We still don't know where it's going, which is part of my concern," Meyer said.

"I think managed money plays a role, but I think it is the underlying market fundamentals that push things in a particular direction," he continued.

Throwing light on the recent volatility in prices, Meyer noted that "corn and soybean prices have been rising since the fall of 2020."

"After Russia entered Ukraine, there was a risk there, and the market prices in risk," he added.

"We have these run-ups in output prices. Sometimes you have a weather shock, then you have a war and export restrictions which add to it," Meyer said.

Meyer highlighted that the markets "get back down" when it comes out of these supply shocks, but from a producer's standpoint, "when commodity prices correct, those input prices tend to be much more sticky," meaning that margins for producers are narrowed.

It is the margins that truly incentivize production. In the US, although fertilizer prices have come down, the cost of "other input bits have not," like costs associated with labor, and likewise, although the interest rates have fallen, the drop is "not so much," he continued.

"In the current scenario, the cost price squeeze is something that many producers are concerned about," Meyer said.