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Economist says other countries will be unable to supply China's robust demand.
May 11, 2018
Farmers in the Midwest have begun planting soybeans just as the trade war with China, the world’s largest consumer of the crop, has reached another nerve-wracking point.
Last week, Bunge, the world’s largest oilseed producer, told Bloomberg that China has essentially stopped buying U.S. soybeans and instead is purchasing soybeans mostly from Brazil. U.S. soybean sales to China are down compared to last year, according to U.S. Department of Agriculture data.
In recent years, China’s demand for soybeans has been strong, making it the second-largest market for U.S. agricultural exports.
“China picked a commodity that would do maximum damage to U.S. agriculture and could do political damage to the Administration,” said Ian Sheldon, an agricultural economist who serves as the Andersons chair in agricultural marketing, trade and policy with The Ohio State University’s College of Food, Agricultural & Environmental Sciences (CFAES).
In April, China threatened to impose a 25% tariff on U.S. soybeans and tariffs on 105 other American products. This was in response to tariffs that the U.S. Administration proposed on a range of China's imports valued at $50 billion.
If imposed, a 25% tariff on U.S. soybeans would mean that companies in China would pay 25% more for those soybeans, and the additional money would go to the Chinese government.
China’s demand for U.S. soybeans has been driven by an increase in meat, especially pork, in the Chinese diet. So, having a sufficient supply of soybean meal to feed those livestock is critical.
Even if China were to rely more on Brazil and Argentina, which also supplies soybeans, those countries can’t meet China’s huge demand without some from the U.S., Sheldon said.
“The Chinese are going to work hard to fill that gap. Brazil and Argentina can pick up some of the slack, but they can’t pick up all of it,” Sheldon added.
In the short term, the trade war will bring down the world price of soybeans, said Ben Brown, who runs the CFAES farm management program, which provides farm policy and market information to Ohio farmers and others.
“There is every reason to be nervous about this,” he said.
Brown agreed, however, that China, being the largest buyer of soybeans in the world, eventually will resume buying U.S. soybeans because the transaction costs involved in China getting soybeans from other countries, including the transportation costs, would make them far more expensive than U.S. soybeans, he said.
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