Trade truce offers farm relief but how much is still unclear

President Donald Trump’s phase-one trade deal with China offers the promise of more overseas sales for American farmers, but the impact of the agreement remains unclear.

Trump has promoted a commitment by China to purchase $40 billion to $50 billion annually in farm products for the next two years. That compares with $24 billion in agricultural and related products that China imported from the U.S. in 2017, before the trade war began.

In an agreement signed Wednesday at the White House, China committed to importing at least $12.5 billion more agricultural goods this year than in 2017, rising to $19.5 billion next year. The Asian nation will also “strive” to purchase an additional $5 billion a year in farm products. That could get total purchases next year toward the $50 billion mark.

But doubts have surfaced on whether China will meet that target, particularly since the two governments have said they will keep secret the purchase benchmarks for individual commodities. China hasn’t committed to specific tariff reductions under the agreement and may simple step up waivers to enable increased purchases of U.S. goods.

“Just count me as skeptical,” said Roger Johnson, president of the National Farmers Union, the nation’s second-largest general farm organization, who spoke ahead of the signing ceremony. “We’ve been down this road so many times before.”

The outlook grew more uncertain as U.S. Trade Representative Robert Lighthizer said any tariff reduction would happen after a phase-two agreement, which would not start until significant progress on implementation of phase one. Bloomberg reported Tuesday that existing U.S. tariffs on China will remain in place until after the presidential election on Nov. 3, a report the administration denied.

Still, the deal is seen by several U.S. agricultural groups as a good first step, and at least amounts to a cease-fire in an escalating trade war in which China concentrated retaliatory fire on American farmers. Growers and other rural residents are a key constituency for Trump as he campaigns for re-election.

Commodity markets have had a muted response, with active contracts at market close Tuesday up only 3.3% for soybeans and 0.5% for hogs since Dec. 12, the day before Trump announced the agreement. Trading was mixed Wednesday: while wheat gained, soybeans slid on concern that China may not follow through on its buying pledges.

Without details on how China will reach the $40 billion to $50 billion in purchases, it offers little clarity to farmers as they renew annual loans and start making planting decisions.

“Until we see some big purchases, many in the market are going to remain skeptical,” said Joseph Glauber, former chief economist for the U.S. Department of Agriculture.

The U.S. agreed not to go ahead with a new tranche of tariffs in December and to reduce the rate on about $120 billion of Chinese products as part of the deal. After the first phase takes effect, the U.S. will maintain 25% tariffs on $250 billion of Chinese imports and a 7.5% levy on another $120 billion.

Soy has been the main U.S. agricultural export to China, accounting for about half the total value. A large part of the imports have been used in the past to feed China’s hog herds. Now, though, the pig population has been devastated by African swine fever, and demand for feed is weakening.

While U.S. exports of pork and possibly poultry and beef could rise as a result of the swine fever epidemic, American pork shipments worldwide in 2018 amounted to about $6.4 billion. A 50% boost to that total would only add about $3.2 billion, and could drive up meat prices for U.S. consumers, Glauber said.

Citigroup Inc. analysts said in a Dec. 19 report that it would be a “challenging feat” for China to import even $32 billion in U.S. farm product in 2020. Still, Shanghai JC Intelligence Co., an influential Chinese agricultural consultant, said the Asian nation could meet the target.

“While China’s phase-one commitments are welcomed, U.S. pork exports continue to be suppressed because of the country’s 60% punitive tariffs,” National Pork Producers Council President David Herring said in a statement. “In order to fully capture the benefits of this deal, we need China to eliminate all tariffs on U.S. pork for at least five years.”

Ractopamine Review

China also committed to decide within 24 months of a formal application on whether to approve agricultural biotechnology products for “feed or further processing.” Long waits for Chinese approval of new gene traits for corn and soy have been a point of friction.

As part of the accord, China will also conduct a “risk assessment” on a feed additive called ractopamine that can speed weight gain in hogs. China has banned meat imports from animals that were fed ractopamine, leading some U.S. producers to eliminate the drug from their supply chains.

“We’ve got plenty of ractopamine-free pork available for them right now,” Herring said by telephone. “I don’t think that’s an issue today.”

The agricultural products covered in the deal include oilseeds, meat, cereals and cotton, as well as seafood, dried distiller grains, ethanol and dairy.

“A positive step forward,” said Tom Vilsack, the former agriculture secretary who now heads the U.S. Dairy Export Council, citing progress on non-tariff barriers to U.S. dairy products.

But, “America’s dairy farmers have been disproportionately harmed by China’s retaliatory tariffs, and we cannot ask our farmers to continue operating under this financial uncertainty,” said Randy Mooney, chairman of the National Milk Producers Federation, said in the same statement.