SIOUX FALLS, S.D. - South Dakota pork producers welcomed the signing of the phase one trade deal with China on Jan. 15, but they are still unsure what it means for their future. Details were revealed on the sidelines of the South Dakota Pork Congress in Sioux Falls, including the commitment by China to buy $80 billion of United States agricultural goods over the next two years.
Keynote speaker Jim Wiesemeyer, a consultant for Pro Farmer, shared with Agweek that the amount would be split.
"They're saying China's going to buy less than $40 billion, in other words $36.5 billion, the first year. The second year, 2021, they're going to buy more, $43.5 billion. But they do not detail the commodities at all," he explained.
He said that makes sense because China does not want to earmark what they are going to buy and when, plus it would be market distorting.
At the same time, South Dakota Pork Producers Council President Craig Andersen and South Dakota Soybean Association Executive Director Jerry Schmitz were in Washington D.C. accompanying South Dakota Gov. Kristi Noem at the White House signing ceremony. Andersen said it was an honor to represent the state's pork producers. He said they are excited about the opportunities the deal could bring and believe that with China's pork herd devastated by African swine fever, pork may be the first commodity they buy as they need to restock their reserves. "That would be the obvious first choice to us because pork is by far the most significant protein that China uses," he said.
However, he said the industry needs more details, especially if pork producers are going to ramp up production to meet their needs. And the meat has to be free of ractopamine, a feed additive banned in several countries, including China.
China will leave in place tariffs on U.S. agricultural products such as the 25% tariff on soybeans and 60% punitive tariff on pork. This is a concern for pork producers who have been severely hurt by the pull back in purchases by China because of the additional duty. Bill Even, National Pork Board CEO, said they are hopeful the tariff can be eliminated through phase two of the agreement.
He said Iowa State ran an economic analysis to assess the impact of the tariff on U.S. pork producers. "It's about $8 a head or about $1 billion a year that we're kind of leaving on the table due to the tariffs," he said.
However, Wiesemeyer expects China to get around that provision through the issuance of import certificates for specified amounts of goods duty free. That is what China has been doing the last few months for both pork and soybeans. So Wiesemeyer doesn't think this will be an obstacle to Chinese purchases.
The U.S. will also leave current duties in place on $370 billion of Chinese imports. Wiesemeyer said these will not be taken off until after phase two is complete.
"This is Trump 101. He wants to use the tariffs as leverage to keep China coming to the negotiating table to work out the thorny issues left in the agreement," he said.
At the signing ceremony at the White House, the Chinese Vice Premiere Liu He also stated that China would buy as market conditions dictate, regardless of the deal. That statement is being interpreted as China's backdoor to the deal. However, Wiesemeyer thinks the U.S. will be able to enforce the agreement as it contains the most aggressive dispute resolution language he has ever seen in a U.S. trade agreement.
"There's an expedited process. There's an initial call where the staffers, agricultural staffers both in China and in the U.S., say the Gregg Doud level, will discuss some issues. Then if it has to go to the level of U.S. Trade Representative Bob Lighthizer and his counterpart in China it will," he said.
He said then there's a 90-day process that the process has to be completed by, which is much faster than the multi-year dispute resolution process going through the World Trade Organization.
China will also make reforms in areas like intellectual property, technology transfer and end its currency manipulation. The deal will go into effect 30 days after the signing.
Pat Von Tersch with Professional Ag Marketing in Luverne, Minn., said the initial market reaction to the deal was not the big rally that some farmers had hoped for because of the lack of purchase details. Instead he said the market had already priced in a deal.
"So now that we have moved past phase one, I think the trade's going to be looking forward to some proof in the pudding, if you will, that we get some actual trades done," he said.
He said the market will be anxiously watching for business in the weekly export reports, especially in the meat sector and the daily flash reports from the U.S. Department of Agriculture. Von Tersch doesn't think the deal will be a game changer though.
"I think it's going to be awfully hard for us to get into that bull market phase and see some tremendous sort of surge in demand as a result," he said.