$5.05 $40 30-50 Billion
China bought $5.05 billion of American farm goods.
Billion
China had agreed to purchase an average of $40 billion of US agricultural products.
FEEDSTUFFS – SPRING 2020
The signing of the US-China phase 1 agreement on the 15th of January seemed to signal the beginning of a return to relative stability following a period of 18 months of fractious trade negotiations between the world’s two largest economies.
Set amid a backdrop of falling global demand for feedstuffs as China’s pig industry struggled to contain the spread of African Swine Fever (suffering losses of up to 50% of their overall herd according to some estimates), this deal represented a ‘Bonanza’ for American agriculture: China had agreed to purchase an average of $40 billion of US agricultural products over the coming year in exchange for cuts to tariffs on Chinese goods. However, it was the outbreak of another contagious disease that soon caused this to pale in significance.
Since the COVID-19 pandemic was declared, the Chinese government has given assurances that they will meet their obligations under the agreement, and recent purchases of grain and increased imports of US meat products indicated that this could indeed still be the case: Data has shown that in the first quarter, China bought $5.05 billion of American farm goods, up 110% from last year, including a seven-fold increase of US pork amounting to 168,000 tonnes.
The fast-tracking of the approvals process for US ethanol producers, outlined in the phase-1 agreement suggested that US distillers grains (DDGS) would be the next item on the shopping list, given that the Chinese feed industry had been working to reduce the dependence on soya in their formulations (some of which dated back to the 1980s, at the recommendation of the USDA). This exercise has already been carried out with rapid approval of Ukrainian sunflower crushers, who exported meal to China for the first time in 2019, significantly reducing the availability for European consumers.
However, the ensuing economic shut-down has not only stymied progress in the recovery of Chinese demand but more profound impacts in the availability of feedstuffs more widely: Lack of container freight, particularly for chilled and frozen goods heading to China has weighed heavily on meat processing margins which are further impacted by the shutdown of restaurant and takeaways, despite a short term boon as shoppers filled their cupboards during ‘social-isolation.’
The reduction in petrol consumption, which has been estimated at anywhere between 30-50%, has been disastrous, not only for US ethanol producers who were already operating with negative margins: Pre-Covid, 14 US plants had already been idled since 2018; this number increased to 44 during the peak of the crisis. Even producers in Europe have felt the pinch, where ethanol prices had previously been buoyed by the launch of E10 fuels in Denmark, Hungary and the Netherlands with the prospect of the UK to follow suit by 2021.
A TURBULENT FEW MONTHS TO SAY THE LEAST, DRIVEN AS MUCH BY EXTERNAL FACTORS AND BY POLITICS AS MARKET FUNDAMENTALS.
Pre-Covid, 14 US plants had already been idled since 2018.
Percent
14 | ADMISI - The Ghost In The Machine | Q2 Edition
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