Should Beijing try to fulfill its pledge to buy $40 billion to $50 billion in United States agricultural products, farmers wouldn’t be able to produce additional product to meet the demand but would still benefit in the form of higher prices by redirecting exports to China from other countries.
“Yes, we can export $40 billion to $50 billion more to China. It just may not be in addition to what our current exports are,” said Veronica Nigh, economist for the American Farm Bureau Federation. “We’ve been exporting additional soybeans to other parts of the world in large part because Brazil, Argentina, and other places have been exporting their products to China.”
The White House has not made it clear how the purchases might be fulfilled, implying instead that they would be in addition to current exports. At the time China’s purchase commitment was announced last month as part of a broader deal, Trump tweeted, “In fact, there is a question as to whether or not this much product can be produced? Our farmers will figure it out. Thank you China!” The same day, he tweeted to farmers, “Start thinking about getting bigger tractors!”
The Trump administration and Beijing are currently involved in trade talks to cement “phase one” of the deal reached last month, which would include between $40 billion to $50 billion in Chinese purchases of American farm goods. In exchange, the U.S. would hold off on 25% tariffs on $156 billion worth of Chinese goods set to go into effect and roll back some existing tariffs on Chinese goods, according to various reports.
Peterson Institute for International Economics senior fellow Jeffrey Schott noted there just isn’t that much unsold U.S. farm goods for Beijing to buy. China bought about $20 billion in U.S. farm goods annually prior to the trade war, accounting for about 15% of all farm exports. Last year, farm exports to China dropped to just $8 billion, with soybean exports alone dropping by about $4 billion.
Yet, despite the trade war, exports of U.S. farm products worldwide are slightly up, with exports at $133 billion, up $1 billion from the previous year. China may not have been buying, but other markets were, so the soybeans, pork, and other products went to them. While there are still surplus soybeans that have been stored away due to the trade war, it’s not enough to cover the level that a $40 billion to $50 billion purchase would require.
“[T]here is no room for additional exports from the improved but still depressed level of 2018–19. Perhaps the United States could import soybeans from Argentina and Brazil in order to have enough soybeans to increase exports to China!” Schott wrote.
Nigh said that even if the U.S. simply redirects sales away from other countries and to China, that still benefits farmers. When China pulled back on its purchases, commodity prices dropped due to less competition. In other words, while farmers could find other markets, they had to lower their prices to do it. The price per bushel for soybeans, for example, dropped by about 50 cents over the last year, standing at about $8.25 currently. The decline in price means that farmers are planting less, too, meaning there is some scope for marginal added production. The Agriculture Department reports that planted acreage is down almost 15% from last year.
“We’re looking at prices going up rather than staying stagnant,” if the China deal is reached, Nigh said.
