China’s state-owned food company, COFCO, has recently made a headline-grabbing purchase of three cargoes of US soybeans. This acquisition was made the day before the widely expected summit between US and Chinese leaders. This transaction is repayment for a goodwill gesture. It reflects Beijing’s broader goal to stop the ratcheting upward of trade tensions that has hurt the economic ties between the two countries.
The latest soybean purchase was the shocker. Read more about China avoids buying US ag products this year. The third major factor is the continuing US-China trade war, which has left American farmers in limbo. They are staring down enormous economic devastation, with $2.6 billion in lost exports so far. In the years prior to the beginning of the US-China trade conflict in 2017, soybeans were the largest US export to China. In 2016, China purchased a staggering $13.8 billion of our soybeans.
Despite this recent acquisition, challenges remain. China is now under a 13% tariff on US soybeans due to the addition of China’s preexisting base tariff of 3%. As a result, U.S. shipments are still too costly for commercial purchasers relative to much cheaper Brazilian options. This mismatch has led to a 90% decrease in China’s soybean imports from the US. By 2024, it plans that only 20% of its soybean imports will originate from the US, a drastic decrease from 41% in 2016.
Market analysts are quick to point out that this purchase is a sign of potential warming in relations. They are positive that it will be the catalyst for any meaningful increase in demand for US ag products from China.
“We don’t expect any demand from China to return to U.S. market with this change.” – A trader at an international trading company
Non-Chinese buyers are quickly redirecting their attention towards Brazilian cargoes. This trend adds to the positive market challenges for U.S. soybeans in the international marketplace. The trade war has disrupted supply chains worldwide, leading many traders to question the feasibility of a return to previous export levels.
As the summit date approaches, all eyes will be watching to see how each country addresses these unfair trade practices. Her positive vibe notwithstanding, will China’s goodwill gesture make real and permanent changes in what it buys and how? The agricultural sustainability industry is similarly waiting anxiously, looking for answers that might restore US agricultural exports to past glory and return order to the market tumult.