Trade conflict overview
Beginning in the 2017-18 marketing year, the U.S. and China entered a period of elevated trade conflict with one another, and many agricultural products were affected by a retaliatory Chinese tariff hike in April 2018.[ii] Lost exports for American farm producers amounted to a significant opportunity cost, or loss, but are now rebounding. In this article, four commodities are discussed, but it is important to note that the tariffs affected a wide range of American farm producers either through individual crops grown or the lack of overall demand from complementary products. It is important to note the over-arching effects upon the individual countries and world as a whole and that the interconnectedness may or may not have benefited other industries.
U.S. soybean exports to China experienced a notable decline between 2017 and 2020. A three-year average leading up to the trade conflict shows roughly 32 MMT per year of exports, or about 1.2B bu. per year. Per the graph below, if assumptions had held steady from the 2016/17 marketing year, not including any trend-line growth, 96 MMT, or 3.5B bu., would have been anticipated. Instead 60MMT, or 2.2B bu., were the reality for American producers. If trend-line growth were factored in, the calculated loss would be even larger. While the disruptive nature of tariffs played a considerable role in lower exports, other drivers including currency fluctuations and African Swine Fever (ASF) also contributed.
However, the forecasted commitments for the 2020/21 marketing year continue to be promising. 34 weeks through the marketing year, commitments total 35.7 million metric tons (MMT), or 1.3B bushels (billion bu.), and, as of April 22, 97% of commitments have transitioned to actual, accumulated exports. The amount represents the most commitments on record so far YTD through a marketing year. If the current trajectory continues, 2020/21 will hopefully exceed what could have existed previously from growth in trend-line exports and help to re-coup some of the exports previously lost.
Chinese pork-cut exports fared much better than soybeans. However, they were also likely heavily influenced by ASF, first announced in the Shenbei District of the Liaoning Province in China as of August 2018.[iii] The decrease in Chinese exports lost in 2018 were more than made up for with 2019 and 2020 exports, and 2021 exports are also looking very promising. Represented in the chart below, annual Chinese pork exports for 2020 were historically the highest achieved to date per available data4 going back to March 2013.
Corn also fared better than soybeans during the additional exports and trade agreements. Chinese corn commitments in the 2020/21 marketing year have grown significantly to 23.2MMT, or 912MM bu., and are the largest within the last decade. If commitments hold, and turn into actual exports, it would be a considerable gain compared to the 0.7MMT, or 54MM bu., exported in 2016/2017. Actual accumulated exports to China total 10.68MMT, or 421MM bu. (46% of commitments), through April 22, 2021.
Chinese tree nut exports during the trade conflict appeared to be minimally affected with large positivity occurring in the last quarter of 2020. Although initial concern existed for 2020 exports through August, in part a result of the previous West Coast fires, 2020 Chinese exports ended up showing exceptional strength through the October and December timeframe, especially almonds and pistachios. Almonds, pistachios, hazelnuts, and pecans represented roughly 45%, 34%, 10%, and 6% respectively of the tree nut total in 2020. As shown in the chart below, tree nuts, as a whole, for the fourth quarter were up 81% year-over-year in 2019 and up 91% year-over-year in 2020.
It is important to note that there was also significant government intervention. One of the largest programs, the Market Facilitation Program (MFP), was spread over three tranches in two years from 2018-2019. 6,7 Collectively, the program cost American taxpayers approximately $23 billion—$8.59 billion in 2018 and $14.5 billion in 2019,—and made direct payments to American producers to offset the lost export opportunities.7 These measurements provide a benchmark of what the loss of trade opportunities cost specific agricultural sectors. While different commodities displayed significant opportunity costs, trade responses amongst various sectors saw varying levels of demand erosion. Some of this may or may not experience long-term effects with a re-arranging of trading partners.
One of the largest recipients of the program were soybean producers accordingly, as soybeans were the most affected. Direct payments of $1.65/bu. in 2018 and $2.05/bu. in 2019 were received by soybean producers.5 During the same period, near-term soybean cash Chicago Board of Trade (CBOT) futures prices ranged from $8.00-$10.50/bu. The CBOT near-term soybean cash price has since recovered from the lows in the tariff war period and were $15.77/bu. as of May, 4, 2021.8 Many payments were made to additional commodity growers across all 50 states and in some U.S. territories.6
Since the conclusion of 2020, exports have rebounded in a big way. Soybeans in particular have returned to what possibly could have been considered close to trend and corn has grown considerably with other commodities showing promise as well. Regardless, those studying the U.S and China trade tariffs will be reminded that opportunity costs associated with policy, geopolitical and trade decisions can affect industries at a moments notice.
1 Stevenson, Angus; Lindberg, Christine A. (2011). “opportunity cost”. New Oxford American Dictionary. Oxford University Press. ISBN 978-0-19-539288-3.
2 CBS News , China Announces Tariff Hike on $50B of U.S. Goods, April 2018.
3 Centers for Disease Control and Prevention (CDC) African Swine Fever Virus, China, November 2018
4 United States Department of Agriculture (USDA) Foreign Agricultural Service (FAS)
5 USDA, Market Facilitation Program Data, October 2020