There are worries that the U.S. may be seen as an unreliable source of commodities such as soybeans.
There is concern about both the immediate and long-term impact on U.S. exports, including important agricultural commodities such as soybeans, stemming from the trade war between the China and United States.
Terry Branstad, the U.S. ambassador to China, told The Wall Street Journal on Friday that not only hasn’t a date been finalized for a meeting between President Trump and China President Xi Jinping, but preparations for such a meeting are not yet under way.
However, Larry Kudlow, director of President Trump’s National Economic Council, told CNBC Friday while there is “nothing in cement … there is a lot of talk about a meeting” between the two leaders at Mar-a-lago in late March or early April.
Speaking earlier this week at TPM19, the Journal of Commerce’s annual conference on the transpacific container shipping trade, Mike Steenhoek, executive director of the Soy Transportation Coalition, said there has been a dramatic drop in soybean exports to China in the current marketing year, which began Sept. 1 and continues through Aug. 31.
In the prior marketing year that ended Aug. 31, 2018, there had been a surge of soybean exports “because people saw the writing on the wall.” But the situation has changed sharply since last summer.
China normally imports about 35 million metric tons of soybeans, he said, about 10 percent of which moves in containers and the remainder in bulk ships. He said the U.S. has only shipped about 10 million tons to China in the current marketing year.
Although the marketing year is only half over, the poor start bodes poorly for the entire year since 80 percent of U.S. soy exports occur between the months of September and February. He said that’s because the spigot for U.S. soybean exports turns off in the U.S. around this time of year when exports from South America take off. The harvest and planting times in the Southern Hemisphere, he noted, are the inverse of those in North America.
Steenhoek said the American Soybean Association has had an office in China since 1982, a farsighted move by an industry that realized that once the Chinese had the financial wherewithal to improve their diets with increasing amount of poultry and pork, there would be strong demand for feed ingredients like soybeans. And since the Chinese are heavy users of cooking oil, “you could not design a better marketing opportunity for the soybean plant than the country of China.”
Exports ramped up and infrastructure was built to serve the Chinese market, but Steenhoek said “now all of sudden that reputation we built up and all this infrastructure … is being called into question.
“Even if President Trump and President Xi have the ultimate ‘Kumbaya’ moment, will this marketing opportunity snap back like a rubber band? I would say probably not. What we have done is to encourage China to look elsewhere and adjust their practices [so they] are less reliant on the U.S. soybean industry,” said Steenhoek. “Once those systemic changes are made, they do not easily come back.”
April Zobel, manager of export traffic for The Andersons, an exporter of soybeans and other feed ingredients, said recent figures from the Federal Grain Inspection Service show soybean exports are off 38 percent.
“There is not a large market outside of China for all of these soybeans to go to,” said Zobel, adding there has been some increase in shipments to Thailand, but there are not countries that can replace the demand that used to come from China.
In addition, she said there are fewer long-term agreements for sales and more short-term, “hand-to-mouth” buying of agricultural commodities from Southeast Asian customers.
“The uncertainty is the hardest part of what we are up against,” she said.
Steenhoek said farmers have a limited ability to adjust to changing demand. While there has been a pickup in exports of soybeans to buyers in Pakistan, Egypt and Europe, he said, “there is no other market like China.
“We need this (the trade war between China and the U.S.) resolved, and we need to have a real sensitivity to this industry,” he said.
Lawrence Burns, senior vice president of trade and sales at Hyundai Merchant Marine (HMM), said exports of containerized cargo to Asia generate little revenue for carriers.
For example, in the fourth quarter of last year when carriers were rushing to move cargo from China to the U.S. ahead of threatened tariff increases on Jan. 1, eastbound transpacific freight rates climbed to as high as $2,600 to $3,000 per 40-foot container from Yantian to Los Angeles. These were “probably the highest rates we were able to collect in a number of years,” said Burns.
But in the westbound direction, from Los Angeles to Yantian, he said rates were only $175 to $250 per FEU. (The highest he has seen were about $500 or $600 per FEU.)
Such low freight rates from the U.S. to Asia “are not going to prevent any cargo from reaching its market,” he said.
Burns said, on the other hand, as markets for some U.S. export commodities have shifted away from China and moved to countries in Southeast Asia, carrier costs have increased sharply because shipping lines now have to reposition containers to China for the movement of exports to the U.S. or other parts of the world.
“We are now lifting that container twice. This is a very big impact,” said Burns. Repositioning containers into several different ports in China and allocating equipment has been “quite a struggle,” he said, as it has coincided with high demand for containers as shippers front-loaded exports from China to the U.S. in an attempt to move cargo ahead of real or threatened tariffs.
“We end up getting into situations where we have to lease equipment,” he said.
While relatively few soybeans move in containers to China, statistics from the Port Import/Export Reporting Service (PIERS), show container exports of soybeans were down 56.6 percent in 2018 after growing 89.5 percent in 2017. Exports of soybeans from the U.S. to all destinations were down just 1.7 percent and to Asia down just 1.4 percent.
Exports of another popular feed ingredient, dried distillers grains with solubles or DDGS (a byproduct of the ethanol industry), were up 20 percent globally in 2018 and up 15.2 percent to Asia, but down 61.3 percent to China, according to PIERS.
The Renewable Fuels Association said DDGS exports were the second highest on record in 2018, totaling 11.88 million metric tons. An estimated 31 percent of U.S. DDGS production was exported in 2018.
The association said U.S. DDGS exports to China have been dropping since 2016, when China imposed punitive anti-dumping and countervailing duties against U.S. DDGS. After plunging 84 percent in 2017 due to the imposition of duties, it ranked 17th in 2018, accounting for only 2 percent of U.S. exports, the association said.
Mexico was the top destination for U.S. DDGS exports, representing 17 percent, followed by Vietnam (11 percent), South Korea (10 percent), Thailand (9 percent) and Turkey (7 percent).
Overall, containerized exports of all commodities were pretty much flat, down just 0.2 percent in 2018, down 4.7 percent to Asia and down 24.5 percent to China.
Cotton exports from the U.S. were up 14.1 percent globally in 2018, and 14.9 percent to Asia, but down 4.3 percent to China.
Containerized wastepaper exports from the U.S. were down 10.8 percent globally in 2018, down 23.6 percent to Asia and down 43.2 percent to China, in large measure because of China’s environmental or “green fence” policies.