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Column: U.S. soybean rally offers modest help toward China’s Phase 1 goals

FORT COLLINS, Colo. (Reuters) - U.S. soybean export prices have recently topped six-year highs, which in theory would help China meet its agricultural trade promises to the United States in a speedier fashion.

Soybeans are harvested from a field on Hodgen Farm in Roachdale, Indiana, U.S. November 8, 2019. REUTERS/Bryan Woolston

The rally has indeed padded the export values, but they have been far less impactful than the enormous volumes of U.S. soybeans that have sailed to the Asian country in recent months.

The Phase 1 trade deal calls for China in 2020 to import a record dollar value of U.S. agricultural products, even more than in 2012 or 2013, which featured some of the highest commodity prices ever observed, well above today’s levels.

Critics of the Phase 1 trade agreement argue that establishing a dollar-based trade deal is senseless because the feasibility may be weighed down by lower prices, which were dominant earlier this year.

In October, the United States shipped 11.4 million tonnes of soybeans to all destinations worth $4.8 billion, both all-time highs for any month. That is according to data published on Friday by the U.S. Census Bureau.

Some 8.35 million tonnes of U.S. soybeans worth $3.5 billion departed in October for China, about six cargoes short of October 2016’s all-time record. Weekly export inspection data suggests that November bean shipments to China came close to those of October, though November soybean export prices out of the U.S. Gulf were close to 7% stronger than in October.

Bean export prices were relatively cheap for the time of year back in June and July, but they rose along with Chicago futures beginning in August, reaching multi-year highs last month.

Using estimated November exports and costs, the United States may have shipped around $10 billion worth of soybeans to China between August and November. But if the July price remained constant through that period, the total would have been near $8.4 billion assuming the same volume.

That gap of $1.6 billion is just 4% of the full-year target of at least $36.5 billion suggested by the Phase 1 deal, and again, that is based on a historic rally in prices. One could argue that the hypothetical gap might even be narrower since lower prices might have encouraged additional purchases.

SOYBEANS ON TOP

Through October, the United States in 2020 had shipped $18.8 billion worth of U.S. agricultural and related goods to China, up 5% on the same period in 2017, the baseline used in the Phase 1 trade deal.

The 2020 quota was intended to be at least 50% above that baseline. If using the mid-February enforcement date, that lifts the 2020 margin through October to 18% over 2017.

U.S. soybean exports to China were running at historically low levels through mid-year, but the oilseed has still anchored the export program, especially in recent months. Soybeans have accounted for 42% of the January-October value of American farm goods sent to China, which is slightly below normal.

Pork and pork products come in at No. 2 with 10%, followed by cotton and forest products (both 7%), sorghum at 4% and corn at 3.6%.

Soybeans accounted for 71% of the total October value, the highest for any month in three years. Corn was second with 4%, and cotton, tree nuts and pork added 3% each.

U.S. pork exports to China hit a three-month high in October by volume, but they were still more than 30% off the early 2020 average. China’s meat imports have slowed in recent months due to a boost in its hog herd and the increased inspection of frozen food cargoes for the novel coronavirus.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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