45 Our Advertisers Appreciate Your Business Better Farming | January 2025 His recent threat against Mexico is that he will implement a 25 per cent tariff on imports from the country if they do not secure the border. Mexico is threatening to fight back with tariffs of its own. Like in his initial term though, there are likely to be provisions for exemptions and/or tax holidays for certain American companies, organizations, and industries that import from China. To help end the damaging trade war, China and the U.S. signed a Phase One trade agreement in January 2020, and it required China to purchase $80 billion of American ag during 2020 and 2021. Though the final purchase amount was only about three-quarters of that target, China did sharply increase their ag buying from the U.S. For example, U.S. pork exports rose by about 470% Y/Y in 2020. In marketing year 2023-2024, Mexico was the biggest ag trade customer of the U.S. and total exports to the country were valued at $30 billion, which was higher Y/Y by $2 billion, and included a record 24.5 million metric tons (MMT) of corn (making up 40 per cent of total 2023-2024 U.S. corn exports). China bought $25.7 billion of U.S. ag in 2023-2024. Due to China’s unsavoury experience with Trade War 1.0, they tried to reduce their ag dependence on U.S. commodities and looked to attain more of their requirements from the other major producers. They invested heavily in Brazilian ag companies and infrastructure, including ports and logistics. This led to a spike in Brazilian soybean production in recent years, to record highs as more Brazilian land area was brought under cultivation. Thus, China virtually set up a “captive” supply for their soybean needs, which is key for their ag sector. China also approved the import of Brazilian corn, which led to more global market share loss for the U.S. Among the U.S. commodities that could be affected the most by a possible trade war with China are soybeans, corn, and pork. One could also add beef, sorghum and cotton to that list. In the U.S., the National Corn Growers Association (NCGA) and the American Soybean Association (ASA) commissioned an economic study that pointed out that in the event of Trade War 2.0, U.S. soybean exports to China could drop by 52 per cent, while corn exports could fall by 84 per cent. Given that Brazil and Argentina compete with the U.S. on capturing global ag market share, they look to be well-placed to benefit from a U.S.-China Trade War 2.0. China is in a much different economic condition than the one it was in when Trump was president last. Their economy is struggling after their real estate sector went bust, and recent fiscal and monetary stimulus does not seem to be working. Their economy depends on exports and manufacturing, and not domestic consumption. So signing a deal with the U.S. could benefit both the economies (the two largest in the world), as well as the North American farmer. A higher tariff this go-around, at 60 per cent, could break the camel’s back and push China into a corner, but tariffs in the 10 to 20 per cent range may get absorbed by Chinese companies that are keen on exporting to the U.S. There are market participants who believe that Trump could dust off the old Phase One trade deal and/or negotiate a Phase Two trade agreement. An agreement on the trade deal could be signed quicker than last time but it still needs to go through a process to approved, which means that it could take more than 90 days. China National Cereals, Oils, and Foodstuffs Corporation (COFCO), in mid-November 2024, said that China’s total soybean imports for the 20242025 marketing year are likely to drop by 9.5 per cent Y/Y to 98.8 MMT. The U.S. is expected to make up about 20 to 25 MMT of that total, but that will depend on the U.S.-China trade situation. Since late summer of 2024, U.S. ag exports have gathered momentum, with some hefty purchases by big buyers like China and Mexico. Some market analysts opine that importers are buying in advance or “front-loading” (with respect to the whole marketing year that runs into next summer/fall) so as to avoid having to buy when Trump kicks off his trade wars. A likely reason for the buying momentum, though, is the fact that prices are very attractive and lower, and all buyers, including China, were bargain hunting. Last time, the U.S. government provided support to farmers in the form of a “trade war allowance” as the trade war had caused sharp erosion of grain and oilseed values. They may do the same this time around and provide more free money, but the Canadian farmer is unlikely to get anything of the sort and will have to bravely face the lower commodity prices. Concerns over soybean export sales to China are back in the headlines for 2025. The grain trade and markets are coming to a realization that the “Trump Effect” is unlikely to be friendly for ag commodities. Any country on the receiving end of tariffs will retaliate, which could result in short-term pain for farmers. However, countries could come to the table sooner to negotiate. China’s Premier Zi said that he understands there are differences between the U.S. and China’s trade ideologies but said that he is willing to talk. Be prepared for more volatility as there remains a lot of unknowns and uncertainty going into 2025. BF Moe’s Market Minute MOE AGOSTINO & ABHINESH GOPAL Maurizio (“Moe”) is chief commodity strategist with Farms.com Risk Management and Abhinesh is head of commodity research.
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