There may be some changes in the near future which could help an agriculture industry hit hard recently by tariffs and trade wars, according to a crops economist and marketing specialist from North Dakota State University.
By Brad Mosher
That was the outlook at the Hettinger County Crop and Livestock Improvement Association’s annual meeting in New England Feb. 1 in the city’s Memorial Hall.
“When we talk about trade and tariffs, the one that really in the news right now is the relationship between the U.S. and China. We have a lot of other trade agreements that are either near completion or have just started. Four or five other trade and tariff issues that will have an impact on prices well beyond what we have with China,” Frayne Olson started the annual meeting explaining to the audience.
“What happens in the soybean market is very important to the canola prices and the sunflower prices,” said Olson, who is with the NDSU Extension Service, focusing on agribusiness.
Things have been changing in Washington D.C. in recent days which could have a dramatic impact on agriculture in North Dakota, he said. “In the last few days, senior officials, these are the top negotiators for both the U.S. and China, got together for face-to-face talks.”
Some information has been coming out about the status of those talks, Olson said. “China has agreed that they make an additional purchase of five million metric tons – which turns out to be about 184 million bushels – from the United States. That is facing additional support in soybeans and grains.
“Soybeans have gone up about eight, corn was up about three and wheat was up about four,” Olson said, noting the market impact that morning. “So this is really a soybean thing, right?
“That is important but it won’t necessarily be one big purchase. When China comes in and says they are going to buy more stuff, it usually means that five million will be the total,” Olson said, noting that the Chinese will instead be buying several times.
Still, the planned purchase will be good for the market. “That is a big number. They just haven’t purchased it yet.
So far through the market year, which started in September, the Chinese have not come close to their historical purchases. They have bought (through January) between three and 3.7 million metric tons. Ifr you look at the exact same time period last year, they bought slightly over 21 million (metric tons).,” he said. “They are still way behind what we normally see.”
When the presidents of the United States and China met at the G20 summit in December, they agreed to start negotiating to stop the trade war, according to Olson.
“President Trump put on a 90-day limit on these negotiations, so March 1 is the ‘Drop Dead’ date.
“So, circle March 1 on your calendars because that is going to be a really important date. If we don’t get a deal by then, and President Trump and his administration is not pleased with the outcome, we will go to a whole new level of tariffs again.”
According to Olson, there has been progress in the negotiations, which have been going on almost continuously.
In addition, there has been a rumor that the two presidents may get together in mid-to-late February to agree to a deal, Olson said. If that happens, there probably would not be a formal signing because of all the details which would be needed to be worked out.
“The chief negotiator on the U.S. side is U.S. Trade Representative Robert Lighthizer. He is the guy in charge. He was saying that there was substantial progress made on intellectual property rights and technology transfer issues. Those are the two sticking points for the U.S. Those are the two really big issues … between the United States and China.
“Agriculture is important, but it is not the number one issue. Ag has kind of gotten sucked up in the tornado of all this stuff going on,” the economist said.
According to Lighthizer, the trade representatives from the United States were looking for three key things – China being more specific about technology transfer and how they were going to handle it; China being more encompassing to cover a broader range of goods and products; they want it to be enforceable by China.
“It is my opinion that the enforceability has been the sticking point,” Olson said. “That has been the hard part in how do we make sure when the Chinese agree to something, they are going to follow through with it. How do we (Americans) verify it?”
Olson said that Ag issues and products have been part of the discussion in Washington D.C., including the volume, quantities and dollars involved. “Ag is a big piece of this, but it is not the only thing, obviously,” he added.
What is important with the trade talks is that both sides have said that they have made progress, according to Olson.
“There still is a chance this (the talks) could fall apart, but the odds are going up, which his good. It also means both sides are making some concessions,” he said.
China’s promise to buy
Although soybeans might be on that list of agricultural products, Olson warned that it might not be good for the soybean market in the United States. “It doesn’t necessarily mean they are going to go back to buying the soybean quantities they used to from us. We don’t know yet.
“Soybeans is one of the few products that China buys from us in large quantities. They buy huge quantities of soybeans from the world, but they have to. China has a massive agricultural sector, it is just not big enough to be self-sufficient,” Olson said.
China decided long ago to focus on growing rice, wheat and corn about 15 years ago and rely on buying soybeans, he explained.
The Chinese are already buying up other crops to replace the soybeans from America, he explained. “The problem is volume. They are set up and geared for handling raw soybeans. They have the largest crushing sector in the world.
“Can they crush canola? Absolutely. The number one buyer of raw canola from Canada is China,” Olson said.
The Chinese also are importing sunflowers from Russia, he said.
China has agreed to buy $1 trillion in products from Americans over the next six year, the economist said. “That is not just Ag products. We don’t produce enough Ag product, but this is a big deal. They are trying to narrow that difference (trade deficit) and Ag products are going to be part of that.”
According to Olson, the Unites States is way behind on soybean sales. The language in the trade deal will have a huge impact on the success of the soybean crop.
One of the trade points the Americans are working on is to try to have the Chinese match their historic purchase levels and if that happens, it would bode well for the soybean growers in America, he explained.
“I do think the U.S. negotiators understand this issue,” Olson added.
“How is this going to play out? Nobody wants to caught on the wrong side,” Olson said. “My expectation is that we are going to see an upward chugging in prices. The indication is we are going to see an upward chugging in prices and the market can handle it.
“Before, I was really worried that the local elevator, railroad, the export terminals on the West Coast couldn’t handle the volumes China needs if they really started to kick in and buy not only soybeans, but wheat, corn, rice and a bunch of other stuff.
“Looking at the numbers, we have the capacity now,” he said.
Logistically, the cheapest place to get those grains is here, according to Olson. “We have a logistical advantage. We can get it there faster and cheaper than anyone else in the world. So, more than likely, a large amount of that grain will come from this region.”
Cut soybean acres
“We really have to cut soybean acres to bring the reserves back in line,” Olson said. Pointing to one of his graphs he was showing on screen, Olson said that “the corn market can absorb some extra acres without crashing the prices. I do think we’ll see an increase in corn prices.”
When it comes to wheat, people will have to wait until March 8 when they release the report, the NDSU agronomist said.
“We have a fine line we are walking here,” he added.
“We happens in the soybean market will have an effect on all the others.”
“Brazil is not going to have a monster crop like everyone thought they’d have. They are going to have a good crop… not as failure … but not the monster crop.
“They are going to have average to slightly below average yields,” he said.
“That is a big shift. It will provide support… not necessarily for old crop, but for new crop.”
According to Olson, the only way to make the math work for the U.S. farmers is if six million acres of soybeans are lost.
Instead, there would have to be a three million acre increase in corn acreage. “that would get the price relationships in the futures market pretty close,” he said.
“Corn is always going to be more expensive than soybeans… but if you are going to hit a home run on a crop, it is going to be on corn.”