By John DePutter & Dave Milne – July 30, 2019
“China has approved wheat imports from the Russian region of Kurgan, the Chinese customs office said on Friday, bringing Russia a step closer to its goal of dramatically increasing grain exports.”Reuters, July 26, 2019
What it means:
The potential for less long-term demand for U.S. grains and oilseeds.
Back when the U.S.-China trade war began in earnest over a year ago, some analysts suggested there wouldn’t be much impact on American agricultural exports at the end of the day. The thinking was that, even if China wasn’t buying as much from the U.S., they’d have to buy from somewhere else and U.S. supplies would simply fill the resulting holes in demand elsewhere in the world.
But as we all know now, that hasn’t happened. Yes, the U.S. has shipped more soybeans for example to other, less traditional buyers around the world, but those exports have fallen far short of what China would have normally been expected to buy. Of course, African Swine Fever has been a major factor in why China has been able to curtail its purchases of U.S. soybeans, but there’s another reason too – other countries have stepped up their production game to cash in on the Chinese demand.
Other countries upping their game
The South American powerhouses of Brazil and Argentina are the most obvious examples of that when it comes to soybeans. In its July supply-demand update, the USDA forecast combined Brazil-Argentina soybean output in 2019-20 at 176 million tonnes, up 3 million from a year earlier and almost 11% above two years ago.
With China searching out other alternatives to the U.S. soybean, and with South American prices showing stronger prices relative to U.S. markets than was the case in previous times, it’s no coincidence South American producers are expected to seed and produce more.
Meanwhile, other countries are priming their production machines as well. As noted by the Reuters article above and reported earlier this month, Russia is pondering a plan that would see an estimated $70 billion invested in its agricultural industry with an eye toward pushing total grain production to as high as around 150 million tonnes and exports to over 63 million by 2035. (That compares to a total Russian grain crop of 118 million tonnes and exports of 45 million for this year).
It’s also worth noting that Ukraine’s grain exports in 2018-20 hit nearly 50 million tonnes, with production on a rising trend in that country as well.
It’s a competitive global game and we’re part of it
All of this is a challenge to producers in the U.S., as it seems President Donald Trump’s trade battles may be awakening sleeping giants.
At over 93 million tonnes, total estimated U.S. agricultural exports for 2018-19 remain unrivalled in the world, but as we’ve already seen with the loss of soybean business to China, any softening in exports can have a significant impact on markets affected by it.
Canadian markets follow U.S. markets so we need to pay attention to this too. And as Canadians, we have our own challenges with competition from non-North American growers of various crops.
An old adage in the ag business is that they’re not making farmland anymore, but with improving technology and management practices, farmers in other countries are nevertheless still managing to push the production ceiling higher.
Geopolitical shifts affect your bottom line
There is little question farmers in the U.S. and Canada remain global leaders when it comes to crop quality and innovation – two traits that may be needed more than ever in the wake of trade upsets and rapidly increasing international competition.
Your business is affected by weather, first and foremost. Geopolitical shifts – like the one we’re seeing now affecting China’s soybean purchases – are going to run a close second, as we move through the coming decade. DePutter Publishing pays attention to geopolitical shifts like this. We offer big-picture commentaries you will want to pay attention to, through services like the weekly Market Advisory Service newsletter and the daily Ag-Alert Service
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