US farm sales to China hit by bumper soybean crop from Brazil, supply chain disruptions
The coronavirus pandemic and strong foreign competition are obstructing a US push to increase sales of farm products to China, even as Washington banks on Beijing buying more of its agricultural goods as part of the phase one trade deal signed in January.
While analysts say the pandemic has not affected soybean shipments from the United States, cheaper beans from Brazil have made them less competitive. The South American country is also benefiting from its largest harvest on record.
US pork exports, meanwhile, have been hit from coronavirus-related supply chain disruptions, forcing cuts to production capacity.
China is exploring ways to accelerate purchases of farm products such as soybeans by asking state-owned firms to buy them for government reserves, Bloomberg and trade publication Agribusiness reported, citing unidentified sources.
US pork and soybean farmers had high hopes of increasing their exports to China after Beijing waived a 25 per cent tariff on the American products, which was imposed in July 2018 as a countermeasure to tariffs levied by Washington in the first days of the trade war.
But new data shows that any gains made late last year have tailed off.
Between April 10 and 16, net sales of US soybeans for delivery during the 2019-20 crop year to all foreign buyers rose 41 per cent to 344,900 tonnes compared to the previous week, according to a weekly report released by the US Department of Agriculture (USDA).
However, export sales of US soybeans were down 48 per cent compared to a four-week average prior to April 10 to 16. China did not buy any soybeans between April 10 and 16 for the 2019-20 crop year, the report said.
Darren Cooper, senior economist at UK-based research firm International Grains Council, said that demand for US soybeans from China have been especially weak over the last few months.
“Tariff waivers have been issued to Chinese processors for the purchase of US supplies, but heavy volumes [of Chinese purchases] have still not been secured,” he said.
“We saw big purchases by China through to mid-December as trade negotiations with the US progressed, but there has been very little since.”
China planned to import 92.48 million tonnes of soybeans this year, up from 88.59 million tonnes in 2019, according to China's Ministry of Agriculture.
In a March report, the agriculture ministry said imports of US soybeans would rise this year after tariffs were lifted on March 2, but did not specify by how much or offer a timetable.
As part of the phase one deal, China agreed to increase US agriculture purchases by US$32 billion over two years.
“Soybeans shipments have been progressing smoothly with little disruption at all [due to the pandemic],” Cooper said.
“However, as things stand, even with the removal of the tariff, Brazilian supplies are still very competitive, especially given the weakness of the [Brazilian] exchange rate against the US dollar.
“Moving forward, the bigger influence in coming months will be the outlook for the US crop in 2020 to 2021, which is now being planted, and the potential for bigger sales to China in the year ahead.”
The pandemic has forced a number of US pork suppliers – including Tyson Foods and Smithfield Foods, the latter a subsidiary of Hong Kong-listed WH Group – to suspend production, further tightening meat supplies.
Some US farmers were forced to destroy their hog herd because of the closure of processing plants and the sharp decline in demand from closed restaurants.
This has wreaked havoc with both US wholesale pork prices and export sales.
US lean hog futures for June delivery climbed to 51.6 cents per pound on Friday, a sharp rebound from this year’s low of 41.5 cents per pound recorded just a week earlier.
From April 10-16, US pork export sales fell to 39,800 tonnes, 13 per cent below the previous week, according to the weekly USDA report.
Still, China – the world’s largest consumer of the meat – emerged as one of the biggest buyers of US pork, snapping up 9,700 tonnes in the latest week.
Last year, the US was the third largest exporter of pork to China, after Spain and Germany.
Private Chinese importers play a significant role in sourcing pork alongside large state-owned agriculture companies like Cofco, but are more sensitive to price changes.
Chenjun Pan, animal proteins analyst with Rabobank, warned that the pandemic would make global hog prices volatile this year and could significantly impact the amount of pork Chinese commercial firms would be willing to buy.
“The US-China phase one [trade deal] is one of the key factors for this year, they [China] need to consider this,” said Pan. “However, for the commercial importers, they will mainly consider the price.”
The Chinese government has sought to bring down the domestic price of pork by releasing frozen pork reserves and expanding imports.
From April 13-17, the average pork price index in 16 provincial-level regions tracked by the Ministry of Agriculture stood at 43.38 yuan per kilogram, down 0.3 per cent from the previous week.
However, in March the average cost of pork was still more than double what it was a year earlier.
China has begun to steadily rebuild its domestic pig herd after African swine fever began sweeping across the country over a year and a half ago, killing or forcing the culling of 60 per cent of the pig population and sending domestic pork prices to historical highs.
Domestic supply of pork would fall to 39.34 million tonnes this year, 7.5 per cent below 2019, while overall consumption of pork would drop 5.6 per cent to 42.06 million tonnes, the agriculture ministry has forecast.
Imports of pork are expected to rise 32.7 per cent this year to 2.8 million tonnes, the ministry said.
Private forecasters are more pessimistic about domestic production, and also warn about the effect of the pandemic on imports.
“Our forecast is that pork production will roughly drop 15 to 20 per cent, depending on the restocking pace,” said Pan, adding that the Covid-19 disease may temper China’s overall imports.
“There have been a lot of disruptions in logistics, in the operations in the US and also in Europe, but China imports from many countries. The US is one of them but the largest supplier remains the European Union,” said Pan.