Washington Insider -- Friday

China Outlines Ag Policy Priorities, Including Boosting Soy Output

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

USDA Maintains Its FY 2019 Export Forecast, But Ups Imports

U.S. agricultural exports are still expected to come in at the same level in Fiscal Year (FY) 2019 as USDA expected in November, but the agency now expects even more agricultural imports to be brought into the U.S.

USDA forecast U.S. agricultural exports will be valued at $141.5 billion in FY 2019, according to their Outlook for U.S. Agricultural Trade report, steady with their forecast issued in November, as "decreases in grain and oilseed exports are offset by higher livestock and dairy exports."

USDA sees grain and feed exports down $100 million to $33.7 billion, compared with November. "Oilseeds and products exports are projected at $27.8 billion, down $100 million from November expectations, driven by lower soybean volumes," USDA said.

"Livestock, poultry, and dairy exports are raised $300 million from the November forecast to $30.4 billion, largely as gains in beef, pork, poultry, dairy, and other products offset declines for hides, skins, and furs," USDA detailed. The agency expects cotton exports to hold at their November forecast level of $5.9 billion.

USDA now sees U.S. ag imports for FY 2019 at $128 billion, up $1.0 billion from the November forecast, and a mark that would be a new record. "This increase is led by horticultural products, livestock and meats, and grains and feed imports," USDA noted.

That would lower the expected U.S. ag trade surplus to $13.5 billion compared with the $14.5 billion level it forecast in November.

The new forecast from USDA would mark a decline in the export forecast from FY 2018 when they were valued at $143.4 billion, but remain above the FY 2017 mark of $140.2 billion.

The $13.5 billion trade surplus would be the lowest since the mark of $12.2 billion in FY 2012.

China Outlines Ag Policy Priorities, Including Boosting Soy Output

China will implement further measures to enhance its rural economy through reform of the agriculture sector, with boosting soybean production and providing support to the dairy sector among its stated aims.

In a policy statement related to its “No: 1 Central Document”, released this week, the government reiterated its priority to rejuvenate the country’s rural economy and to lift people in these areas out of poverty, as first outlined in the 2017 document.

While generally light on detail, the statement noted a number of targets related to ensuring the supply of key agricultural products, including maintaining grain planted area at around 110 million hectares, or 271 million acres.

It said the country will “move to optimize agricultural structure, boost production of green agricultural products or those in short supply, and roll out plans to increase soybean planting and support dairy industry.”

The document added that “efforts will be stepped up to build a new policy system for agricultural subsidies”.

It explained that the country would formulate and improve agriculture support and protection policies following principles that comply with World Trade Organization rules, protect farmers' interests and support agricultural development.

The document also noted the country will enhance agricultural cooperation with countries along the ‘Belt and Road’ – the initiative that has seen the government invest in more than 71 countries stretching from Eastern Europe to Africa and South-East Asia - actively expand imports of agricultural products in short supply at home, diversify importing channels, and foster the development of multinational agricultural corporations.

Washington Insider: Bullish on Corn Exports

Ag markets are always complicated and the current outlook is no exception. Early on, producers felt they were the administration’s chosen people based on the results of the 2016 election. However, the details of the President’s trade policy proposals revealed that they were very close to the front line in that fight—and, in some cases, in the line of fire.

Now, the most recent trade talks seem to have reduced ag pressures at least a little and China has returned to the U.S. market for soybeans in recent months amid a temporary truce between the nations, but traders have been waiting for it to be extended to other products – especially corn, Bloomberg says.

Also, this week corn traders in Asia are said to be reacting positively to the continuing trickle of news on the U.S.-China talks. This came after President Trump’s latest missive saying the negotiations are “going very well.”

The President said that the talks involve “selling corn, but a lot of it, a lot more than anyone thought possible.” If that eventuates, it could deliver useful support to prices which have been weak. U.S. benchmark corn prices rose for the first time in a week as trading opened in Asia on Wednesday, while futures in China dropped.

Negotiations are scheduled to continue in Washington through Friday as a March 1 deadline for higher U.S. tariffs approaches.

“China has said it will take the initiative to expand imports of agriculture products that the country is short of and if the talks go smoothly, there’s the possibility that purchases may exceed the annual quota amounts” of 7.2 million metric tons of corn, said Li Qiang, chief analyst with Shanghai JC Intelligence Co.

China applies low tariff rates to as much as 7.2 million tons of corn, 9.6 million tons of wheat and 5.3 million tons a year of rice, but hasn’t filled all those quotas in recent years due to massive state stockpiles. With those reserves falling, the market is expecting China to import more grain as domestic demand outpaces production.

While China wasn’t as important a market for American corn growers before the trade war as it was for soy – recently the U.S. has exported about half its soybean crop, much of it to China, compared with 15 percent of corn, USDA says. And, it says the return of China to the market would be significant in unfreezing trade tensions.

A team from the USDA was part of the talks last week. The discussions were “productive,” Deputy Secretary Steve Censky told reporters at an industry conference in Schaumburg, Illinois this week. He declined to comment on whether there was an agreement for China to make more purchases of U.S. farm goods during the truce.

“Our goal in these negotiations when it comes to agriculture is not only get some very robust purchase commitments, but to really get the fundamental structural reforms that are necessary over the long term,” Censky said.

China effectively suspended corn purchases from the world’s biggest producer in July by imposing the 25% tariff as the two nations escalated their trade war. Purchases within the annual corn import quota would allow buyers to pay tariffs of just 1%, while those outside the quota are subject to a 65% duty.

Last year, the USDA forecast that China would import 5 million tons of corn in the 12 months that began in October, the most in four years. The Asian nation has also raised its estimate for domestic corn consumption in the 2018-19 marketing year, prompted by the anti-dumping probe on Australian barley and low imports of U.S. sorghum.

Farmers are part of the base that helped drive Trump’s election victory. Amid slumping crop prices, support for the president has mostly stayed resilient. Still, there are some cracks starting to show. At an ethanol conference last month in Iowa, Jeff Altena, a farmer and a director of operations at Siouxland Energy Cooperative, said the “long rope” the agriculture community gave the administration may be starting to fray.

To calm his constituency, Trump has tweeted about his “love” for farmers, Bloomberg notes. His administration delivered an aid package to help counter the blow from tariffs. More than 864,000 producers applied since the program’s debut in September, and payments have reached almost $8 billion, USDA said last week.

So, as always, much depends on trade negotiations – a process that has very important objectives and which may well take more time than is currently programmed. Clearly, this is a process producers should watch closely as it unfolds, Washington Insider believes.

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