Chinese Ag Purchases are Strong, But How Long Will It Last?

Chinese Ag Purchases are Strong, But How Long Will It Last?

2020 was an interesting year when it came to trade between the United States and China. Late in 2020, China began purchasing large quantities of American agricultural goods while attempting to meet the obligations of the Phase One Trade Agreement. David Widmar is an ag economist with Agricultural Economic Insights. He says 2021 is picking up where 2020 left off late last year.

“In the data, 2020 looked like it was a pretty strong year, but not as exciting as we would have hoped early in the year with the Phase One Trade Deal. It’s a year where we had seven or eight months of lackluster activity and then a flurry of activity in the last few months. Some of that is expected because of the seasonality of China’s purchases of soybeans, especially, but it was really strong late in the year, and we’ve carried that over. And there was a lot of enthusiasm about whether China will purchase a record amount of ag goods in 2020, and we didn’t get there for a host of reasons. Now, it looks like we could be off to the races for a record level of excitement.”

Widmar says it’s been a while since China bought commodities at this level.

“The last time they made big purchases was in 2011, ’12, and ’13 era, which was sort of that ‘super-cycle’ of commodity prices, and even at the height there, they failed to cross the 200 million-bushel-mark. These purchases are a huge increase from where we’ve been, recently: a big increase, almost double their historically large purchases. I think the question for 2021 and beyond is how long China will be in this corn-purchasing phase, and what will the size of those future purchases look like? Is this sort of a one-and-done event, or is this a trend we could see play out into the future?”

The question is how long China will continue its “buying spree”?

“One of the things you also have to keep in mind is China’s trend or appetite for ag goods, especially soybeans, has been on the upward trend over the last 20 years. So, there’s a lot of reason to believe that China will continue to purchase into the future, and those purchases will be growing over time. Thinking about 2021, it’s where do we play out in 2021 concerning the total market? How much is available in South America, how much does the U.S. have available, and how do we approach that going forward?”

U.S. soybean supplies are as tight as they’ve been in years, and will there be enough to meet overseas demand domestic crush.

“The U.S. soybean ending stocks situation is very, very tight. So, you have this narrative where China is out purchasing back to normal levels; I wouldn’t say it’s some sort of new level of Chinese purchasing, but they’re back to normal where they were before the trade war: we also have this tight stock situation. So, when you step back and think about where the farm economy is, we have more usages of soybeans today than we’ve had in the last few years, and we’re also able to sell those soybeans at a higher price than we received over the last two years. That’s a big improvement and development in the ag economy.”