Measured by the bushel, the U.S.-China relationship has never been stronger. Through the trade war and open hostilities at the highest political levels, pig farmers in China and crop farmers in the U.S. have become increasingly interdependent. Already America's biggest customer of soybeans and sorghum, for this season China bought an unprecedented 11.2 million metric tons of corn, up nearly 1,300% compared with pre-trade-war purchases.
For the moment, both sides seem happy. The American imports have helped China feed its hog herd, which is recovering faster than expected after the African swine fever outbreak created a shortage of the country's most staple protein. Meanwhile, U.S. farm profits are at a seven-year high, riding China's demand and additional support from federal aid to agriculture.
China has bought nearly 30 million metric tons of U.S. soybeans, the most for this point in the season since 1991 and 57% of America's export sales. For sorghum, which is also a substitute for corn, China accounts for 80% of sales. Corn purchases, once negligible, rocketed to almost 30%.
But the deeper reliance is tenuous. As the trade war showed, that market can quickly evaporate, and experts warn that any number of geopolitical events -- an incident in the South China Sea, for example, or further crackdowns in Hong Kong -- could end with another chill on Chinese imports.
"American agriculture has to be careful of putting too many eggs in the China basket," said Tom Vilsack, who served as agriculture secretary from 2009 to 2017 and has emerged as a leading candidate for the position under President-elect Joe Biden. "I think the lesson that should be learned from the last couple of years is the need for American agriculture to continue to diversify so there's always somewhere else the products can go, other than the storage bins."
Overall, the U.S. has nearly exhausted its export capacity.
"We are loading boats as fast as we can," Gregg Doud, the U.S. trade representative's chief negotiator for agriculture, said in an interview with Bloomberg at the end of October. "North of 95% of what can possibly be done in 2020 is already booked, and a huge chunk of that is soybeans to China."
The farm belt, which voted overwhelmingly for the reelection of Donald Trump, is waiting to see how Biden will approach trade negotiations with China. Trump's North American and Chinese trade deals, plus covid-linked farm aid, have sustained the agricultural economy, said Jim Putnam, who grows corn and soy in Minnesota. "I was never a big Trump fan but he did get the Chinese attention with Phase 1," he said. "I hope that the Biden administration can keep things going."
Even if relations improve, China's appetite for American crops reflects a combination of factors that won't remain static: the strength of China's post-covid economy, the unanticipated consequences of the African swine fever recovery, and the limitations on the country's own corn production.
FAST RECOVERY
When the disease killed roughly half the country's herd after China first reported outbreaks in 2018, traders projected a five-year timeline for recovery. It's been far faster. The herd is now at 80% of its pre-disease levels.
But the industry has changed. Multistory "hog hotels" and large industrial producers have replaced the backyard farms where pigs grew fat on table scraps. The more professional operations mean hogs are eating more corn, soybean meal and other feed grains.
"Everybody focuses on soybean trade, but as the Chinese livestock industry is professionalizing their feeding practices, it means not only the soybean meal demand will grow, but it also means the corn demand grow as well, too," Greg Morris, president of Archer-Daniels-Midland Co.'s Ag Services and Oilseeds unit, said at a recent investment conference.
China already has bought so much corn from the U.S. and Ukraine, traditionally its biggest supplier, that imports this year exceeded for the first time the 7.2 million-ton quota set by the World Trade Organization. The U.S. Department of Agriculture's Foreign Agriculture Services expects China's purchases to triple to 22 million tons this season.
Those are the projections that will inform U.S. farmers as they decide how to allocate their land for the 2021 growing season.
GREAT GRAIN ROBBERY
Privately, American executives worry that they're at a disadvantage. China closely guards the status of its reserves, and only its state-owned enterprises understand the full scale of the country's demand. Typhoons in the northeast could have done serious damage to the country's harvest or, as its agriculture minister said, this year could see a bumper crop. The amount of corn subject to lower tariffs is also opaque.
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Les Finemore, chief investment officer at commodity hedge fund Imbue, drew a parallel with what's known as the Great Grain Robbery of the 1970s. Hiding a severe domestic crop failure, Soviets bought millions of tons of American wheat in a frenzied spree, driving global prices higher and heavily contributing to inflation in the U.S.
In China, the goal is self-sufficiency. President Xi Jinping visited a corn farm in Jilin in July, urging authorities there to protect the fertile soil in the region. If the country can improve its yield by 2.5% per year, it could meet domestic demand by 2029, according to Xu Weiping, a chief analyst with the agriculture ministry. The country is reallocating land from nongrain crops to corn. ChemChina also acquired Syngenta in 2017, and plans to use genetically modified crops and other technologies to help get the country to 90% self-sufficiency.