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Ag expresses cautious optimism over China deal announcement

Business

Experts talk international trade at Northern Corn and Soybean Expo

FARGO, N.D. — Trade has dominated agricultural headlines the nine months and been the focal point of the markets, especially for soybean farmers. That was the focus of a hot topic panel at the Northern Corn and Soybean Expo in Fargo on Feb. 12.

Agweek Anchor Michelle Rook led a lively discussion among experts including Jim Sutter, chief executive officer of the U.S. Soybean Export Council, William Wilson, university distinguished professor in the Department of Agricultural Economics at North Dakota State University and Lesly McNitt, vice president of policy and trade for the National Corn Growers Association.

The trade war that began with China in 2018 resulted in a more than $2 break in soybean prices, which in turn dragged down the corn market by nearly 75 cents. Trade talks taking place between the United States and China have a March 1 deadline for completion before the U.S. raises tariffs from 10 percent to 20 percent on another $200 billion in Chinese goods. However, President Donald Trump has signaled he might be willing to move that date if the negotiations are making progress.

Panelists were doubtful the talks could be completed before that deadline. However, Sutter says an end to the trade war is urgent for the U.S. soybean industry, which exports 60-percent of total production and half of that goes to China.

"I would tell you what I know about the negotiations is that there have been very good discussions taking place as far back as this summer when our ag negotiators were meeting with their counterparts in China," Sutter says. He says while they have been making good progress on agricultural issues, that is only part of an overarching, much broader deal.

The doubt for completion results from the fact the major structural issues between the U.S. and China are still to be resolved.

Wilson says the agricultural issues are easy, such as getting rid of the tariffs, dealing with China state run grain enterprise (COFCO) and getting China to rebound back to the level of their previous purchases. However, the tough areas are still left to tackle.

"It's a pretty monumental the task to sort of unravel these things like intellectual property and forced technology transfer in 90 days," he says.

Wilson says he's also seeing signals from the Chinese media that the date will be extended with negotiators scheduling additional meetings beyond March 1.

Corn growers also hope for a deal with China, as the Chinese have signaled they will make major purchases of U.S. energy and agricultural goods, including ethanol, corn and dried distillers grains. McNitt says NCGA's priorities in the deal include purchases, but also a process for biotechnology trait approvals where the two countries would advance the technology on parallel tracks to get new products to the market place faster.

"I think the administration has signaled the issues are on the table that we care about," she says. "I think you've all heard the horror stories about seven-year delays of biotech approvals."

McNitt says the corn industry also wants to reopen the China market to ethanol. "We've been shut out of it as a result of their retaliation," she says.

However, China wants to go to E10 by 2020 and the U.S. ethanol industry is hoping they will be able to help them get there. McNitt says they need true market access though and not a one-time transaction.

Even if the U.S. strikes a deal with China in the next 30 days, there are questions about whether they will need U.S. beans with Brazil's crop being harvested and coming on line.

Plus, without additional China business, can the U.S. make USDA's soybean export projection? In the most recent World Agricultural Supply and Demand Estimates report, USDA pegged soybean exports for the 2018-19 marketing year at 1.875 billion bushels, down just slightly from the previous year. This has been a seemingly lofty goal with China out of the market, until the most recent 10 million metric ton purchases they made.

However, Sutter explained that U.S. Soybean Export Council has been working in many other global markets to make up the shortfall from China. "Places where we have seen U.S. market share grow include Europe and Japan, old stalwart markets," he says.

In addition, Egypt has increased purchases of U.S. soybeans, as have Pakistan, Bangladesh and Mexico. Sutter is optimistic that as long as soybean prices stay competitive against Brazil, the U.S. can come close to the USDA export estimate.

To watch Part 2 of the international trade panel, click here.