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A look at the trade agreement from U.S. and China perspectives 

By Michele F. Mihaljevich
Indiana Correspondent

MCHENRY, Ill. – The amount of U.S. agricultural goods China might purchase over the next couple of years was a leading topic of discussion during Allendale, Inc.’s July 29-30 Ag Leaders Conference Series.
The United States and China signed the phase one trade agreement Jan. 15. As a part of the deal, China promised to buy about $40 billion in U.S. agricultural products, including soybeans, corn, wheat, pork, poultry and beef, in each of the next two years.
Rich Nelson, Allendale’s chief strategist, noted a recent study that looked at China’s commitment to buy – and actual purchases of – a variety of U.S. products, including agricultural, from the perspectives of the United States and China. Through June, from China’s viewpoint, the study estimated the country had imported $40.2 billion of the $172.7 billion it said it would purchase. From the U.S. perspective, China had purchased $33.3 billion of the $142.7 billion it agreed to buy.
The estimates show purchases by China are “a bit behind,” Nelson said. “In fact, we’re only about 23 percent complete in meeting this goal here for the first half. It definitely leaves a lot of discussion about the second half of the year purchases. This is not just an agriculture issue. It’s not just us saying China’s behind in their buying. It’s a whole spectrum of other industries as well.”
The study also broke down China’s imports through June by industry. For agriculture, from China’s perspective, the country purchased $8.7 billion of the $36.6 billion it said it would. From the U.S. perspective, China bought $6.5 billion of $33.4 billion it agreed to purchase.
China purchased 5.9 million metric tons of new crop corn through July 30, said Steve Georgy, Allendale’s president. “It looks good. It is, right now, just good. Some of the questions I’ve had today – if this is such a great thing, why is it that we haven’t seen the market or we haven’t seen the attitude respond to any of it.”
He said the industry’s current focus on production is one possible reason for the lack of response.
Allendale expects China to buy about 25 MMT of soybeans from the United States, said Greg McBride, a broker with the company. “We originally thought, as we were signing phase one, that maybe 40 million was possible,” he said. Whether it’s 25 MMT or a bit more, McBride said, “it’s still good. It just is not, right now, enough to push us past this supply and the seasonal that pulls us down.”
As of mid-July, seven weeks into the marketing year, U.S. wheat exports were 329 million bushels, 9 percent above the five-year average, said Mike Lung, an Allendale broker. Sales are 25 million bushels more than what the USDA is currently estimating, he noted.
“So right now, export sales are just fine, if not better than expected,” Lung stated. “You can’t have an export picture without talking about the elephant in the room, or I should say, panda: China. Their last period of significant buying (of U.S. wheat) was in 2013, where they bought 4.2 MMT.”
In July, China purchased slightly more than 1 MMT and for the marketing year, Allendale has estimated the country could buy 4-8 MMT, he said.

Weather outlook
The weather should cooperate for most of the region during harvest, according to Drew Lerner, president of World Weather, Inc. He also spoke during the Allendale conference.
“The bottom line (for October and November) is it should be a relatively good harvest season, I think, for most of the Midwest,” he said, “I don’t see a good reason why we would see any prolonged periods of excessive rain.”
For August, he predicted near to below normal precipitation in Kentucky, Michigan and Ohio, and most of Tennessee. He called for the same in the northern half of Illinois, parts of eastern and northern Iowa, and most of Indiana except southwest. Precipitation should be normal in the rest of Illinois, Indiana and Iowa.
Every state in the region is expected to have near to above normal temperatures in August.
In September, Lerner has forecast below normal or near to below normal precipitation for most of the region. Normal precipitation is expected on the eastern edge of the area in parts of Kentucky, Michigan, Ohio and Tennessee.
September temperatures are projected to be above normal in Iowa, Kentucky and Tennessee, most of Illinois and southern areas of Indiana and Ohio. Near to above normal temperatures are expected in the northeast corner of Illinois, northern Indiana and middle Ohio. Normal precipitation is anticipated in Michigan and the rest of Ohio.
Lerner said the possibility exists that 2021 through 2023 could be drier years. “There’s potential for us to see multiple years of drier biased weather occurring and it’s potentially good that we could see enough warmth during those drier years to really exhaust some of the moisture and put us into a more prolonged droughty environment. I would not be surprised to see a series of significantly dry years coming up.”

8/4/2020