Column: Plunge in U.S. soy exports to China in 2021 exposes Phase 1 flaws

China's and U.S.'s flags are seen printed on paper in this illustration taken January 27, 2022. REUTERS/Dado Ruvic/Illustration

FORT COLLINS, Colo., Feb 8 (Reuters) - The United States in 2021 exported just as many soybeans to China by value as a year earlier, but the volume fell 20% in a sign that the Phase 1 trade deal is probably not accomplishing the intended purpose.

Soybeans, among the top American exports to China, also lost significant trade share against other agricultural goods last year while items like corn and beef surged up the list.

Big price tags may be masking some slowing or even decreasing trade, but although demand has genuinely jumped in some sectors, the longevity of that trend is questionable. That is particularly the case with corn, the No. 2 U.S. farm export to China last year.

U.S. Census Bureau data on Tuesday showed that U.S. agricultural and related product exports to China in 2021 hit a record $35.9 billion, up 25% on the year and toppling the prior high of $29.1 billion set in 2013.

That sets the two-year total below $65 billion and well short of the at least $80 billion the Phase 1 trade deal suggested for 2020 and 2021.

U.S. soybean exports to China last year totaled $14.1 billion, nearly identical to 2020’s $14.08 billion but lower than in 2012, 2014 and 2016. That is despite January-December exports falling 20% on the year.

Soybeans usually account for about half the total annual value of U.S. farm trade to China, but the oilseed’s share dipped to 39% last year, which aside from the trade war disruption in 2018 is the smallest portion since 2006.

U.S. agriculture and related product exports to China

FLAWED PLANS?

It is unlikely that U.S. officials negotiated Phase 1 in January 2020 thinking commodity prices would begin their surge to multiyear highs months later. In fact, there had been concerns that the trade war may have caused so much damage to U.S. agriculture, particularly for soybeans, that prices could take years to recover.

Various crop shortfalls, a sudden demand boom out of China and macroeconomic influences sparked the recent commodity rally in late 2020, transferring huge costs onto buyers. The exported cost of U.S. corn in 2021 rose 50% from 2020 and soybeans rose 29%, nine- and eight-year highs, respectively.

Phase 1 stated that China’s U.S. purchase targets would continue to increase into 2022 through 2025, but the deal expired at the end of 2021 and the Biden administration has been relatively inactive when it comes to the Trump-era agreement.

U.S. officials on Monday called for “concrete action” from China to fulfill its purchase commitments amid reports Washington is losing patience with its counterpart. read more But vague comments like these have been common from the U.S. side for months now, and the next steps remain unclear.

Assuming the idea behind Phase 1 was to boost U.S. export volumes to China, the deal was faulty from the start because it implied unreasonable demand increases. Using historical relationships, Phase 1 suggested 2020 U.S. soybean exports to China nearly 40% above the previous record despite Chinese demand rising less than 10% since then.

Beijing has maintained since the early days of the deal that it would buy based on market conditions, basically hinting it will not buy excess quantities. It is uncertain whether China’s huge grain and oilseed imports in 2021 were part of any “rainy day” stockpiling.

OTHER MOVERS

Perhaps the most promising trade trend with China in 2021 was the huge increase in U.S. beef and product exports, which totaled almost 191,000 tonnes and accounted for $1.59 billion.

That volume is up almost 350% from 2020 and accounted for 13% of all U.S. beef exports last year versus 3% the year before. Sales for 2022 are off to a good start, up 26% on last year’s high through late January.

One downside of the beef surge is that it likely took away from pork business, which boomed in 2019 after disease ravaged China’s hog herd. U.S. pork exports to China in 2020 were No. 2 behind soybeans at a record $2.28 billion, but the 2021 value fell 26% and volume declined at a similar rate.

Corn was also a difference-maker in 2021, though the current outlook is weaker. U.S. corn exports to China totaled 18.8 million tonnes, some 167% above the 2020 record. The $5.1 billion valuation was up more than 300% on the year and accounted for 14% of all farm exports to China, good for No. 2 behind soybeans.

As of late January, almost 9 million tonnes of U.S. corn awaited shipment to China before September versus 11.6 million on the same date a year ago. China has not made big U.S. corn purchases for nine months.

Bulk commodity exports to China last year were up 10% by volume and 23% by value, and other big contributors besides corn were sorghum, up 11% by volume but 63% by value, and wheat, up 22% and 41%, respectively. Like corn, current sales levels for both grains to China are smaller than last year.

Aside from pork, cotton was a big loser in 2021 with U.S. exports to China down 41% on the year by volume but well above the previous six years. Poultry and poultry product volumes slipped 12%, though higher prices lifted the value above 2020 levels.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

Editing by Matthew Lewis

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As a columnist for Reuters, Karen focuses on all aspects of the global agriculture markets with a primary focus in grains and oilseeds. Karen comes from a strong science background and has a passion for data, statistics, and charts, and she uses them to add context to whatever hot topic is driving the markets. Karen holds degrees in meteorology and sometimes features that expertise in her columns. Follow her on Twitter @kannbwx for her market insights.