As the trade war
between China and the USA is raging on, opportunities open for the domestic
market and exporters from countries like Brazil.
China
and the USA, the countries with the world’s two biggest economies, are
threatening and implementing huge tariffs on each other’s products in a fight
that many see as the beginning of a trade war. None of both currently seems to
be willing to give in, even the citizens have mixed opinions.
The
trade war was starting to getting fierce, as the USA called duties on imports
of aluminum and steel and the Chinese government decided to respond with some
extra tariffs on more than 100 American products of up to 25%, especially on
agricultural products imported from the USA, including economical very
important commodities like soybean, corn, wheat, beef and sorghum. However, the
final implementation measures and the date has not officially been announced
yet.
The
tariffs on agricultural products are hitting American farmers and the economy
hard, looking at the fact that agricultural exports from the USA to China
represent almost USD20 billion annually for American farmers. After all, the
USA is the world biggest agricultural producer and many farmers making a living
exporting their goods to emerging markets with high demand, like China.
According
to market intelligence firm CCM, adding tariffs up to 25% won't greatly affect
China's total agricultural imports but will be instead good for the domestic
demand for agricultural products, especially in the food and feed production. A
researcher from CCM disclosed, that additional tariffs on sorghum and soybean
imports will help boost domestic corn demand.
Especially
tariffs on corn will not play a huge role. Official data from China Customs
show that in the whole of 2017, China's corn imports from the USA only took up
27% of its total corn imports. After all, Ukraine is still the most important
corn import origin into China. Therefore, the corn import business won't be
greatly affected by tariff increase on American corn.
Figure
China's selected corn import origins by import volume, 2017
Source:
CCM & China Customs
From
the point of view of the USA, one of the most sensitive issues could be tariffs
on soybean exports. According to CCM’s research, in 2017, soybeans were the
biggest USA agricultural export to China at a value of USD12 to 14 billion.
Hence,
if China is getting serious and slaps the tariff on American soybean, it would
make other global suppliers like Brazil the more attractive choice for Chinese
buyers, who need soybeans as feed for the growing livestock industry.
Furthermore, it is likely that more expensive soybean form the USA would
encourage worldwide suppliers to add more acres of soybeans, and then
negatively impact the price American farmers can get for their crop in return.
China
is the largest consumer of soybeans in the world, using about 60% of the
world’s annual production, to feed its livestock industry, the world’s largest,
including 400 million pigs alone.
To
be more precise, China’s soybean import volume reached 95.54 million tonnes
last year, with 53.31% coming from Brazil, 34.39% from the US and 6.89% from
Argentina. Soybean meal is one of the important raw materials for feed. In
response, feed companies will adjust formula, increasing protein supplements
which contain corn gluten meal, a byproduct of corn processing. Corn gluten
meal contains high protein content and abundant amino acids, which is widely
used to substitute feed raw materials such as soybean meal and fish meal. If
soybean meal prices keep rising, demand for corn gluten meal will rise.
What’s
more, China is the world's largest sorghum importer as well. In 2017, it
imported more than 5 million tonnes of sorghum, of which most of it came from
the USA. As a matter of fact, on February 4, the Mistry of Commerce had
launched anti-dumping and anti-subsidy investigations into sorghum imports from
the USA. For the long run, sorghum import volume will significantly decrease,
and this will boost domestic demand for corn used as feed, according to CCM.
On
the whole, tariff increases on USA soybean and sorghum will boost import prices
of these products from the USA, and will eventually boost domestic demand for
corn, which is good news for the domestic corn market in general.
About the article
The
information for this article comes from CCM, China’s leading market
intelligence provider for the fields of agriculture, chemicals, food and feed.
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