This is clearly not “winning so much you can’t stand it”.
During the 2016-2017 market year which the Donald inherited, the US got the lion’s share of China’s soybean imports, taking nearly 60% of the total compared to Brazil’s 31%. And that was pretty much in line with the historical trend.
Needless to say, the green bar for the October 2018 to May 2019 period shown below is not a green shoot of progress. Brazil snagged 75% of China’s soybean buy because the stable genius and un-paralled deal-maker in the Oval Office decided to make the US grain belt trading bait in his attack on China’s $443 billion trade surplus with the USA.
Nor is it only a case of vanishing U.S. soybeans exports. During 2016 the US exported $25 billion of total farm products to China including grains, oils, meats, forest products and even fish, ethanol and biodiesel. Yet by 2018 that total had dropped to less than $13 billion, and was far below the peak levels of nearly $30 billion reached back in 2013.
So when the Donald tweeted the Greatest Deal Ever for farmers after his meeting with Vice-Premier Liu He last Friday, people knowledgeable about the farm trade with China were surely overcome with guffaws:
“The deal I just made with China is, by far, the greatest and biggest deal ever made for our Great Patriot Farmers in the history of our Country,” he said. “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 second bolded sentence about the limits of US production capacity is about the only point he got right. In fact, the $40-50 billion of purchases the Donald touted are not going to happen in a month of Sundays. We will be lucky, in fact, to regain the $30 billion peak of six years ago.
As is evident from the chart covering the last 18 years, the overwhelming bulk of farm exports to China has been accounted for by grains (red bars) of which soybeans accounted for more than 90%. But having put Brazil in the drivers seat during the past 18 months, clawing back the historical US market share shown above won’t be easy, but even if Beijing makes a deal to force feed its domestic market with US soybeans it really won’t amount to, well, a hill of beans in the bigger picture.
We are referring to the fact that farm exports are totally fungible on the global market. The overwhelming share (85%) of the $59.3 billion of soybeans exported to world markets in 2018 were accounted for by Brazil at $33.2 billion and the US at $17.2 billion. The next two largest exporters were Canada and Paraguay with barely $4 billion between them.
So were there to be a negotiated political settlement under which China boosted its US soybean buy from last year’s $4 billion to say $15 billion, it would only result in the swapping out of end markets between Brazil and the US. That is, approximately $11 billion of Brazilian exports to China last year would end up in other Asian and European markets, while virtually all of US soybean exports would be shipped to China.
The same is true of the potential for beef and pork export increases (purple portion of the bars).
During 2018, the US exported $8.3 billion of beef to the world markets and $6.4 billion of pork. However, $9.0 billion (61%) of that $14.7 billion total went to Japan, South Korea and Mexico—the three leading US meat export markets. By contrast, only $1.8 billion went to Hong Kong/China.
So again, the fungibility equation would come into play. Since the year 2000, combined US beef, pork and poultry production has risen by only 1.1% per annum, meaning that total supply is not likely to get up on its hind legs and suddenly leap higher.
Instead, if China’s beef and pork imports were to quadruple from say $1.8 billion to $8 billion, most of that gain would come out of current U.S. exports to Japan, South Korea and Mexico. In turn, the latter would likely be supplied by other US meat export competitors who would be displaced from China (e.g. Argentina).
In short, the Donald’s $40-$50 billion of farm export to China is a pipe dream, but also would mainly involve a recouping of China markets the US has recently lost owing to the Donald’s Trade War and a politically driven reshuffling of supplies currently on the global farm export markets.
What that would do for US agriculture in the longer-run is hard to divine, but meanwhile the US taxpayers will soon be on the permanently on the hook for the upwards of $50 billion that the Donald has borrowed in order to subsidize US farmers for the inconvenience of being thrown under the bus.
Given the fact that that this flakey farm exports piece was the only tangible component of Friday’s unilateral announcement by the Donald, once again there is far less to Friday’s ballyhooed Phase 1 deal than meets the eye. As Bloomberg noted,