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With US-China tension rising, should American farmers be worried?

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With US-China tension rising, should American farmers be worried?

  • Featuring
  • Asim Anand
  • Commodity
  • Agriculture

US-China relationship has never been on a shakier ground as war rhetoric surrounds the Taiwan strait.

Not so long ago, Washington was the only superpower and numero uno in global geopolitical dominance. But with rapid rise of China's economic and military prowess over the last couple of decades, Beijing has been contending hard to be counted as a global force. Since the late 20th century, the Asian giant has been firing on all cylinders in its quest to compete with the Americans on every front. Unfortunately, all that firework is leaving a lot of smoke for its neighbors to inhale.

China is currently in maritime and land disputes with 17 of its neighbors, including Japan, India, Singapore, Malaysia, Indonesia and South Korea.

Most of these countries are strategic allies of the White House and this forms the very core of animosity in Sino-US relations in recent years. The Taiwan issue has only highlighted how precarious the situation can become if the two global powers remain incessant. While Beijing remains adamant on its One China policy and sees Taiwan as an integral part, the US believes a democratic Taiwan is crucial for the White House's strategic interests.

The ongoing posturing between Beijing and Washington over Taiwan has been worrying many, including US farmers sitting thousands of miles away, waiting for their upcoming soybeans and corn harvest in September.

"We [US farmers] somehow managed to pull through the last trade spat with China, but afterwards, we did lose some of the market share to Brazil," said an Illinois-based soybeans farmer.

"Another round of trade restrictions from China could see us losing a significant volume of sales, which we can ill afford," another farmer said.

So, the question is: are US farmers' concerns justified?

Data doesn't lie. The fact remains that China is the biggest market for American farmers. The world's second-largest economy with a 1.4-billion population consumes roughly a fifth of US agricultural exports every year.

In fact, China is almost indispensable for American agriculture, especially soybeans and corn.

In 2021, 52% of the US soybean shipments of 53 million mt were sold to China, according to the US Department of Agriculture. China also purchased 27% of 69 million mt of total exported US corn last year.

If that's not all, China is also one of the top consumers of American pork and pork products, cotton and coarse grains, USDA data showed.

US-China tension coinciding with harvest season

The US-China discord couldn't have come at a worse time for soybean and corn farmers.

September means the beginning of a new marketing year for both US crops. With harvest about to kick-off, farmers are wondering if their produce will be sold at the desired price – or if it will be sold at all.

With US-China tension simmering, it is yet to be seen how much American farm products the Asian nation will import this fall.

Take soybeans for example. The USDA forecasts China, the world's largest soy consumer, to import 98 million mt of the oilseed in the 2022-23 marketing year (September-August), which is 9% higher year-on-year. This alone should instill some optimism into the beans farmers.

China has been a major driver in the bumper US soybeans advance sales for MY 2022-23.

So far in August, outstanding export orders for MY 2022-23 are estimated at 15.74 million mt, over 1.33 times higher than the same period a year ago, USDA data showed. More importantly, China accounted for 56% of those sales so far at roughly 9 million mt.

However, putting the enthusiasm aside, some say China is just building up its food reserves before the squabble over Taiwan peaks into full-fledged diplomatic tension, which typically ensues with bilateral sanctions.

If that turns out to be the case, then US farmers will have no option but to stock up and wait for the dust to settle – not an ideal scenario to say the least.

"China accounts for almost 65% of global soybeans demand every year. So, it's impossible for the US to find an alternative market to such a big demand driver," said a Beijing-based commodity analyst.

In its quest to find a substitute for China, the USDA did try to expand soybean supplies into the Middle East, Southeast Asia and South Asia. But nothing could be farther from the truth: for the US soybeans sector, which generated $27.4 billion in exports revenue in 2021, China is irreplaceable.

"It is impossible for the US soybean farmers to replace the Chinese market," Terry Reilly, senior commodity analyst at OTC Global Holdings' Futures International said.

Costly US-China tariff spat continues

US farmers are still reeling from a tariff spat with China, which began in July 2018, when then-US President Donald Trump announced a slew of levies on Chinese goods. The Asian powerhouse retaliated with its own set of high duties on US products.

Eventually, Washington imposed tariffs on more than $360 billion worth of Chinese goods, and Beijing responded with higher levies on more than $110 billion US imports.

By the time the Washington signed Phase 1 of its trade deal with Beijing in December 2019, American farmers had lost in excess of $25 billion worth of agricultural exports to retaliatory tariffs, USDA data showed.

Soybean farmers were the biggest losers in this tiff. The USDA estimated a 71% drop in US beans export revenue between mid-2018 and end-2019.

Reiterating the potential threat of heightening US-China animosity, a Shanghai-based agricultural consultancy said, "If the tensions continue, we see China buying soybeans and corn exclusively from South America and other origins."

"Talks are already in advanced stages with Brazil on importing corn and soybean meal for the first time ever," the consultancy said.

So, as China intensifies its military exercise in the Pacific, US farmers should feel jittery, and rightly so.