It has been several years since I’ve been to China. That was in 1993. Keep in mind, I’m cheating a bit because I was in Hong Kong before it was turned over to China by the British. At the time many people were worried in Hong Kong about the impending Chinese takeover. It’s almost laughable now when you look back on it. There were actually people who thought the British should give that up. In 2018, oh how the world is changed.
Asia is a compelling place for an agricultural economist and farmer. When I was there in 1993 the world was so different. For instance, China had not taken its place is this insatiable soybean consuming machine. Through the years of course that has changed. They are expected to import 100 million metric tons of soybeans this coming year. Just 10 years ago they imported half of that. Multiply that kind of demand across Asia and it just tells you how dynamic the region is for food demand.
A few weeks ago I was in Trenton Ontario for my last speaking event of the season. I had a man walk up to me from Eastern Ontario and he told me that before I said anything, he just wanted me to know that he wanted to go! I laughed because I knew exactly what he meant. In previous columns and some speaking engagements I’ve always said that I would like to take a planeload of Canadian farmers over to Asia so they could witness the food demand firsthand. It is one thing to read about it, it’s another thing to feel it and that would be one of the best ways that I could convey my message. We both laughed.
Of course you all know that I was back in Asia just eight weeks ago and I felt the dynamism of the place again. Incomes are rising, poverty is declining and agricultural commodity demand is booming. So it was incredibly disappointing to me today to hear that the American president has signed an executive order creating a possible 60 billion in new tariffs on high tech products made in China. I simply see the Chinese responding in kind and most likely taking aim at more American commodities with soybeans being the biggest target.
As a Canadian I feel I don’t have much right to complain about American politics or even a right to comment. I’ve heard from readers over the last couple of weeks expressing their frustration with American trade policy. I simply see problems ahead in such a dynamic environment for agricultural commodity demand is being put up as a scape goat for tariffs and other sectors of the American economy. Some people might call it getting sold out. I see the soybean futures market getting whacked if China responds with any measure to thicken the border to American soybeans.
Of course I’m implying that the Chinese will retaliate against possible American tariffs. Nobody knows if that will happen yet, but I think it is likely. China is the biggest buyer of American soybeans. Mexico was the biggest buyer of American corn. Mexico is actively seeking corn from other sources now partly because of the rhetoric coming from Washington. China has a much bigger economy and will likely respond as well. In both cases it will/has resulted in demand destruction for American agricultural commodities. American farmers will not be fooled, they are accepting too onerous responsibility for the rhetoric around these trade issues.
This topic of conversation is being heard in farm country throughout Ontario. Of course one question I’m getting is will Canada benefit from our American friends making trouble with their best customers? Will Canadian grain benefit from their best customers trying to buy from other sources? There is no question that Canadian agricultural commodities will benefit from a lack of American participation in the CPTPP. I wrote about that last week. We will also benefit from our good trading relationship with China in lieu of problems with Americans. However, that will be slow in coming and it won’t take the pain away from a soybean futures market dealing with the Chinese Black Swan.
Next week the USDA will release their acreage guesses on prospective plantings in the United States for this year. The March 29th report is one of the big three of the year and it might serve as a market flashpoint. Big crops will be predicted. We’ll need ever continuing increased agricultural demand to deal with that supply. What we don’t need are trade irritants getting in the way. Needless to say, in 2018 that almost looks unavoidable. There are big flies in the ointment. This changed 2018 world I did not expect.