China's return to US soybeans was seen as a major concession. Here's why it probably wasn't.
- China resumed soybean purchases from the US this week.
- The move was seen as a landmark concession as Beijing and Washington negotiate.
- But economists say the return may have had less to do with a deal and more to do with China trying to meet soybean demand.
While China's return to the US agriculture market was positive news for farmers, it may not mean much for trade negotiations.
The US Department of Agriculture announced Thursday that China bought 1.13 million metric tons of soybeans this week. The move was seen as a major concession from Beijing, with officials in Washington hailing it as a "great step." But some experts say that was bound to happen anyway."That was not a concession," said Wallace Tyner, an agricultural economist at Purdue University. "It was played as a concession. It's a good thing. But it's not something that's surprising. China needs to come to the US to meet its demand."
The Chinese have sought to reduce dependence on American soybeans since a 25% tariff was placed on the commodity to retaliate against the Trump administration, which started a trade war with Beijing this year over policies perceived as unfair.
With a keen appetite for soybeans and relatively fewer resources for increasing domestic production, however, the commodity proved to be a difficult habit for China to kick.
Using them for cooking oil and animal feed, China is the world's largest consumer of soybeans and bought more than half of American exports last year. Farmers tried to make do after the start of the trade war by reducing soybean meal in animal diets, according to Tyner. But with less of the protein-rich ingredient, they saw efficiency levels fall.
South American countries stepped in to fill the gap, continuing to ship soybeans past the typical end of their export season in September. That proved unsustainable, however, with Brazil and Argentina eventually importing American soybeans to keep up with buyers at home and in China.
"The only thing that I would say the negotiations did was signal to Chinese traders that it's okay," he said. "The government had encouraged them to find other supplies. Now, they are saying it's okay to buy American. The reality is - the government knew it and the traders knew it - they needed to buy American."In any case, American farmers were relieved by the return of their largest customer. Following months of historically low prices and a 94% drop in sales to China, the reasons behind a detente were besides the point for some.
"With a matter of time, China would have needed to buy our soybeans," said Luis Ribera, an agricultural economist at the Center for North American Studies at Texas A&M University. "But for the producers, it really doesn't matter how much it was a concession and how much it wasn't."
As details on the framework for an agreement remain elusive and with agricultural duties still in place, the long-term outlook for soybeans is still uncertain. China's commitment to buying American will become more apparent next year, said Dan O'Brien, a Kansas State economist whose research has included soybean market conditions.
Given that South American soybean supplies from this harvest have dwindled, he said it will be telling to see whether China sustains purchases from the US when crops return in Brazil and Argentina.
"No doubt they will turn to South American soybean supplies when they become available in the spring," he said. "But will there be any residual impact from this recent time of trade conflict between the U.S. and China going forward?"
With more time, China could move toward reducing domestic soybean consumption, encourage diversification of foreign suppliers and even develop production capacities in other areas of the world.
"Given now that US soybean exports have become somewhat 'politicized' in this trade battle, I think that the Chinese will have a long term motivation to reduce their riskiness of soybean supply sources and reliance on US soybean supplies," O'Brien added.