Soy mania among U.S. farmers a risk, even if China makes large purchases

If farmers rush into soybeans this spring, they could produce too much of the oilseed even if China, as required under the Phase One agreement, makes large purchases of agricultural exports, according to a university economist. Meanwhile, China said it would allow importers to seek tariff exemptions on 697 product lines including U.S. soybeans, pork, and beef – a step that would make American goods more competitive.

Signed at the White House a month ago, the Phase One agreement obliges China to purchase $40 billion a year of U.S. food, agricultural, and seafood products through 2021. China was the top customer for U.S. agriculture exports before the trade war, which dropped the country to fourth place.

Traders believe growers will plant 85 million acres of soybeans this year, an increase of 9 million acres from last year. Soybeans, second to corn as the most widely planted crop in the country, hold allure this winter as a potential money-maker with the prospect of China as a renewed buyer.

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Soybean exports will need to surge to volumes seen before the trade war — 2 billion bushels or more — to prevent a build-up in the already-large U.S. stockpile, wrote economist Todd Hubbs of the University of Illinois. "If China commences buying soybeans at higher levels to meet the trade agreement, soybean exports may not eclipse 2 billion bushels due to strong competition out of South America." Brazil is the largest soybean exporter in the world and China's top soy supplier.

"Expectations are…increased acreage and a slight increase in ending stocks," said Hubbs at the farmdoc Daily blog.

In a Bloomberg survey, traders said they expected soy plantings of 85 million acres and a stockpile of 533 million bushels at the end of the 2020/21 marketing year. That would be an increase of more than 100 million bushels from the 425 million bushels of ending stocks forecast to be on hand this fall, when the new crop is ready for harvest. Ending stocks were a record 909 million bushels in 2018/19; 425 million bushels would be the fourth highest ever.

In Beijing, the Customs Tariff Commission of the State Council said it would accept applications, from March 2, for one-year exemptions from retaliatory tariffs "to support enterprises to import goods from the United States based on their business considerations," reported the South China Morning Post on Tuesday. Besides agriculture, the list of eligible products included medical equipment and crude oil.

"China is trying to source supplies of meat and medical products from across the globe as the country's own output is unable to meet demand," said the Morning Post. "The Ministry of Commerce said earlier this month that the country would vigorously purchase meat products from other countries and regions to ensure adequate supply in China, while it would also import more medical supplies as well as daily necessities."

On Sunday, China announced removal of its import ban on U.S. poultry products.