Webinar highlights phase 1 progress and opportunities

September 23, 2020 | Bethany Baratta

The phase 1 agreement between the United States and China called for China to purchase $36.5 billion in oilseeds, meats and other agricultural commodities in 2020.

In the first half of 2020, China bought less than 25% of the targeted full-year commitment, buying $9.9 billion in ag products as of July, according to the Peterson Institute. However, the United States has record soybean export commitments from China and to destinations around the globe before the marketing year began Sept. 1.

Jim Sutter, CEO of the U.S. Soybean Export Council (USSEC), says honest, ‘actual need’ is driving demand for soybeans in China. The country’s hog inventory was decimated during the African swine fever (ASF) outbreak. The industry was been ramping up production to achieve pre-ASF hog herd inventories by mid-2021. As bans on swill feeding and the use of antibiotics as growth promotors have been put in place, China’s hog growers rely on quality U.S. soy in the diet.

Week 1 soybean purchase commitments from global customers totaled nearly 15.5 million metric tons, noted Sutter during a recent webinar through the Iowa Economic Development Authority.

“We have a good sales book on, but we need to see these sales get shipped,” Sutter said.

U.S. soy’s work in China started in 1982, Sutter said. Persistence and relationship-building paid off in 1995 when the first soy sales to China took place. Since then, the country has been the largest trading partner for the United States, and the largest consumer of soybean meal from all markets worldwide.

Progress

The results from the implementation of the phase 1 deal matters to Iowa, said Iowa Secretary of Agriculture Mike Naig. Iowa exports of food and agricultural products are valued at $16.8 billion, second in the nation only to California.

He said there are signs of progress on phase 1 commitments.

“More than just the numbers and sales, there were significant structural issues that needed to be addressed,” Naig said. “Phase 1 begins to address some of the challenges that have created trade barriers for so long.”

The agreement put into place important intellectual property protections and lifted China’s ban on U.S. poultry products, including in pet foods. Since the agreement was implemented in March, 50 of the 57 desired structural changes have gone into effect.

A goal of the agreement was to also increase the number of facilities approved to export animal protein, pet food and dairy products from the United States. That has been accomplished, Naig said. Today, 3,500 facilities in the United States are approved to export to China, up from 1,500 before phase 1 was implemented.

Naig is monitoring purchase commitments and the effects that the COVID-19 pandemic might have on China meeting the conditions of the deal. There are also geo-economic tensions around intellectual property and continued tariff threats as the U.S. presidential election nears.

Meat exports

The United States is benefiting from the phase 1 deal as it relates to meat exports, said Dan Halstrom, CEO of the U.S. Meat Export Federation (USMEF).  The agreement removed traceability requirements and age restrictions on U.S. products.

He noted U.S. beef exports are expected to reach 28,000 metric tons this year, an increase of nearly 160% over 2019. U.S. pork exports to China are expected to exceed 1 million metric tons this year, an increase of nearly 80% over 2019.

Halstrom says China’s hog prices are high and steady, suggesting supplies remain limited following ASF outbreaks. However, hog farmers in China are working feverishly to repopulate; live hog prices are fetching the U.S. equivalent of $2.48 per pound.

Sweet spot

As a protein, soybean meal helps livestock grow. As a food source, it’s tempeh and tofu. As an oil, it’s used in cooking and biodiesel production. Global soy demand grows at about 4% per year, and Sutter sees that continuing.

 “Soy is in a sweet spot,” Sutter said.

But it’s not without challenges, he said. Specifically, competition from Brazil, which is the world’s largest soybean producer. The U.S. industry must continue through regulatory channels, ensuring the United States is on a level playing field with competitors.

USSEC must also continue to differentiate U.S. products from its competitors.

“Customers should recognize the difference and value our product,” Sutter said.

The rocky relationship between the United States and China underscores the importance of diversifying the soy sales portfolio. There have been notable soy successes selling to Egypt, Bangladesh, and Pakistan, Sutter said. Work continues also in the European Union, Latin America and Asia.

In a call recently with a buyer group in Japan, Sutter reassured them that the United States is open for business, despite some hiccups this season in various parts of the soy-growing areas.

“We’re seeing buyers starting to do a little more booking ahead, which is encouraging,” Sutter said. “We’re also reminding them about the big footprint the U.S. has in soybean production, and that U.S. farmers can supply all markets, not just China’s.”

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