President Donald Trump announced on Oct. 11 that the United States and China reached in principle a “phase-one deal” on trade, calling it a “tremendous deal for the farmers.”
As part of the agreement, Beijing agreed to purchase “up to $40 billion to $50 billion” in agricultural products from the United States.
Kevin Paap, a farmer and president of Minnesota Farm Bureau, said the deal was “absolutely big” news. The commitment to buy nearly $50 billion worth of U.S. agricultural goods is far beyond what China has been historically buying each year, he added.
China’s record purchase of U.S. farm products was in 2013, when it peaked at around $29 billion.
Paap, who’s a soybean and corn farmer near Garden City, Minnesota, said while the details of the deal haven’t been announced, if China really pledges to order up to $50 billion worth of goods, “that would be very positive for agriculture.”
China was the largest export market for U.S. agricultural products in 2017, before the trade war started. The U.S. farm exports to China plunged by more than half, to $9.3 billion, in 2018 from $24 billion earlier. And it fell further to $8 billion through August.
This significant slump in numbers made China the fifth-largest market for U.S. agriculture exporters.
During his meeting with Chinese Vice Premier Liu He on Oct. 11 in the Oval Office, Trump touted the deal, saying “there’s never been a deal of this magnitude for the American farmer.” Trump suggested farmers “immediately buy more land and get bigger tractors.”
Treasury Secretary Steven Mnuchin pointed out during the meeting that China would scale up its purchases to $40 billion to $50 billion annually “within the second year.” He also told CNBC on Oct. 14 that Beijing had agreed to “take off tariffs on agriculture and they’re going to start purchasing.”
‘Tip of the Spear’
Since the beginning of the trade conflict in 2018, China’s retaliatory tariffs hit mainly farm products, including soybeans, corn, wheat, cotton, rice, and sorghum, as well as livestock products. Soybean farmers have been among those hit hardest, as they accounted for more than half of China’s agriculture purchases from the United States in 2017.
“Because agriculture trade is so important, that typically is why many times agriculture is that tip of the spear as we deal with retaliation in a trade war,” Paap said.
Minnesota is the No. 2 state in pork production in the United States and No. 3 in soybean production, Paap said, adding that farmers in his state were among the most affected by the U.S.–China trade war.
Ahead of negotiations in Washington, China has stepped up purchases of U.S. soybeans. Since the beginning of September, Chinese buyers bought more than 3 million metric tons of soybeans, according to data by the U.S. Department of Agriculture. Soybean futures climbed in October as a result.
U.S. farmers are “dealing with some serious financial and emotional challenges because of poor weather this year in the United States, because of low prices, because of less demand, and trade uncertainties,” Paap said.
However, optimism is rising among farmers, he said, because of the recent Japan trade deal and increased pressure on Congress to pass the new U.S.-Mexico-Canada trade deal.
“As farmers, we always feel better when the beans are on the boat,” Paap said, noting that there is always the risk of China canceling orders. “But we want to certainly be optimistic. And hopefully, China is at the table ready to work together and strike a compromise.”
Nebraska’s farmers and ranchers also welcome the new trade deal with China.
“It’s our hope that this is the first step in resolving the ongoing trade dispute,” Steve Nelson, a farmer and president of the Nebraska Farm Bureau, said in a statement.
“While we are anxious to learn more of the details of this agreement, reports that the deal could include significant increases in purchases of U.S. agriculture commodities beyond previous levels certainly have our attention,” he stated.
In recent weeks, there has been a substantial rally in prices of soybean and corn, according to Joe Vaclavik, president of Standard Grain, a Tennessee-based commodity brokerage firm.
He said market movements are typically slow during harvest season in the United States, which is from late September through the end of November.
The price of soybeans, however, has rallied about 90 cents since it bottomed out at $8.50 a bushel in September. he said. Corn prices also rallied 40 cents.
“These aren’t fantastic prices, but they’re better than what we’ve seen as of late,” Vaclavik said. “So what we’ve got hope for, moving forward, is that China continues to buy beans while the two sides try to work out this first phase of the deal.”
According to the Trump administration, there would be two or three phases in the trade talks. The phase one agreement, which covers intellectual property, financial services, and agriculture is expected to be completed and signed over the next few weeks.
As part of the agreement, Washington suspended the tariff increases on Chinese goods that were scheduled to take effect Oct. 15. However, there is no change of plans for the next phase of 15 percent tariffs that will come into effect on Dec. 15. The administration may use that as a tool to maintain pressure on Beijing if it starts to back away from commitments.
According to Vaclavik, China’s commitment to purchase up to $50 billion in U.S. agricultural goods isn’t realistic.
“It would double the previous record,” he said. “We’ve never done anywhere near that sort of business with China. I’m not saying it’s impossible, but I’m saying it’s highly unlikely.”