The trade war with China will change forever the way the world's top importer buys its soybeans.
That's according to Archer Daniels Midland Co., one of the world's largest agricultural commodities traders. The tariff spat, which has already shrunk American soybean exports, could mean China will try to reduce its dependence on the U.S. by buying from elsewhere and improving yields of its own production, said Ray Young, chief financial officer at Archer Daniels Midland.
"We should not be naive to assume that longer term, China will not want to become more self-reliant on their own supply of agriculture products," he said Tuesday at the Kansas Fed Ag Symposium. "I think this has been a wake-up call for China in terms of understanding the relationship between the U.S. and China and how they will view food security in the future."
China imposed retaliatory tariffs of 25% on American soybeans more than a year ago, bringing shipments to a halt before some goodwill purchases in December and earlier this year.
At the same time, the spread of a deadly pig disease reduced China's soy needs. Chinese imports of the oilseed probably will come in at about 88 million to 93 million tons as African swine fever cuts demand for pig feed, Young said. Before the trade war, livestock illness and China's economic slowdown, expectations were for purchases of about 110 million to 115 million tons, he said.
"Going into the trade war, the thought process was that China couldn't survive without buying any U.S. soybeans," he said. "It's turned out to be wrong. China can survive without buying any U.S. soybeans, partly due to the [swine fever] issue that has unfolded."
Archer Daniels Midland is still positive that the trade war will be resolved at some point, leading to more purchases of U.S. agricultural commodities including soybeans and ethanol. But long-term, the U.S. needs to wean itself off China and find other uses for soy and corn, according to the company.
Chinese soy yields are a little more than half those in the U.S., and the nation will look to improve that, Young said. China is also carrying out land reform, which will consolidate farms into bigger structures and allow for more agronomical improvements.
"There was a reason why ChemChina bought Syngenta; they are bringing the technology in in order to improve yields in China, so you are going to see the entire agriculture sector in China improve in terms of productivity," he said. "When you start consolidating farms, you bring in the John Deere tractors over there and drive significant productivity."
To be less reliant on the likes of Archer Daniels Midland and Cargill Inc., China set up Cofco International, a company formed from the acquisition of Dutch grains trader Nidera and the agriculture arm of Noble Group, Young said. The trading arm of China's largest food company is already a major player in South America.
"U.S. agriculture will have to be less reliant on China as a destination for soybeans and other agriculture products," he said. "When we think about the psychology of U.S.-China relationships, you come to this conclusion that they are going to try to figure out how to become less reliant on the U.S. longer term."
Business on 07/18/2019