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China Phase 1 helping shift buying patterns back to US

Getty Images/iStock Photos China tariffs Getty69334.jpg
CHINA PHASE 1 WORKING: Lower tariffs negotiated through Phase 1 trade deal offering some improved trade flow of U.S. agricultural goods with China.
CFTC Ag Advisory Committee meeting highlights perspectives on post-pandemic exports.

The China Phase 1 deal is helping re-establish agricultural export trade flows to the once favored destination for U.S. commodities, according to a panel who presented at the Commodity Futures Trading Commission Ag Advisory Marketing meeting on June 9.

During a panel discussion offering perspectives on the pandemic, recovery and importance, David Rossen, global hedging manager – cotton at Louis Dreyfus, says the trade war and tariffs created a situation where China looked to alternative suppliers of grain from South America or the Black Sea, and U.S. export values and overall volumes plummeted.

China has begun to shift buying patterns back to the U.S. significantly reflected in increased trade flows and higher prices.

“I believe that the overriding intended benefit ascribed to the Phase One trade deal has been realized where we have seen significant volumes pick up as far as Chinese demand and U.S. agricultural products,” says Rossen.

According to data released June 9 by the U.S. Meat Export Federation, beef exports to China continued to soar in April, reaching a record 17,233 mt (up from just 1,367 mt a year ago). Export value to China was $130.6 million – up from $11.5 million.

While China/Hong Kong remains the largest destination for U.S. pork, January-April exports to the region were down 23% from a year ago to 318,780 mt, valued at $725.8 million, USMEF reports. China/Hong Kong accounted for nearly 35% of U.S. pork export volume last year, but through April the 2021 ratio is down to 30%.

Dhamu Thamodaran, a retired chief commodity hedging officer for Smithfield Foods, says when the trade war started in 2018, China retaliated with a 50% tariff on pork. That cost was largely born by U.S. producers, as European producers could capture additional Chinese market access with improved price competitiveness. The Phase 1 deal lowered the tariff on pork from 50% to 25%.

China produces half of the world’s pork and consumes more than half of the world’s pork, but after being faced with the decimation of its domestic herd due to African swine fever, the country had to purchase record amounts of pork to meet domestic demand. This led to a record pork purchases from the U.S., despite tariffs.

Digging into export demand picture

Thamodaran says with or without a trade deal, the Chinese purchase of pork will continue for likely two to three years before China recovers their livestock supply. If the tariffs can come down further, it will continue to benefit U.S. producers who saw losses of $800 million from the tariffs.

While speaking at the World Pork Expo, National Pork Producers Council President Jen Sorenson says the removal of China’s punitive tariffs on U.S. pork remains a top priority.

“As China continues to struggle with African swine fever, and while U.S. pork exports have increased, these tariffs put the U.S. pork industry at a serious disadvantage as the world's largest pork consuming nation seeks reliable sources of pork,” Sorenson says.

Christian Edmiston, director of sourcing and risk management at Land O’Lakes, also shares that China has significantly increased its use of whey protein, a byproduct of cheese production, in hog feed rations.

The U.S. dairy industry exports the equivalent of 15-20% of its annual production. China is the largest global importer of dairy products, making the relationship with the U.S. paramount.

“As the trade war started and tariffs were put in place, obviously it contributed to what was already a relatively low-price scenario,” Edmiston says.

As China’s demand ramped up here over the least six to 12 months and opened up at times faster than the U.S., it created a significant driver of export demand for U.S. dairy. “That has been a big help on U.S. dairy producers for sure,” he adds.

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