U.S. Agricultural Global Trade Update and 2021 Outlook

The current state of the global food and agricultural trade economy.

Since Phase One of the U.S.-China trade agreement was passed at the start of 2020, quite a bit has happened in the world. The accelerated progression of current events this year makes it challenging to stay on top of the latest news for U.S. agriculture—but particularly challenging to stay informed on the varying agricultural trade agreements and the progress that has been made for U.S. ag exports.

AgAmerica’s Chief Economist Dr. John Penson has continued to monitor this progression and provided a deeper look into the current state of U.S. agricultural trade. Through his insights and other reputable sources, we have compiled a summary of the most recent global trade updates specific to U.S. agriculture into one, digestible article.

The U.S.-China Trade Deal is Strained but Still Alive

The passing of the Phase One trade deal marked China’s promise to buy $200 billion of U.S. goods by the end of 2021—including more than $36.5 billion of U.S. agricultural products by the end of 2020. Yet what began as a stance against the trade deficit between the two economic powerhouses, soon turned into an even more complex issue when COVID-19 quickly spread throughout all corners of the world and created doubt as to whether China would be able to uphold what was considered to be an already aggressive goal prior to the pandemic.

At the start of July, Dr. Penson found that $4.65 billion worth of U.S. agricultural purchases—less than 13 percent of the total goal—had been made thus far. The bilateral friction between the U.S. and China has been exacerbated this year by not one but several factors, including:

• Skepticism surrounding China’s ability to meet the agreed-upon U.S. purchases;
• Lack of transparency regarding the emergence of COVID-19 in Wuhan, China;
• The new security laws imposed on Hong Kong by Beijing; and
• The U.S. stance regarding human rights violations in the Xinjiang region.

The most recent U.S.-China relationship update involves the mandatory closure of the Chinese consulate in Houston, Texas. Although China has vehemently opposed the action, market analysts do not expect it to affect future purchases of U.S. agricultural goods. Despite recent retaliatory action that mandated the closure of an American consulate, so far China is separating the disagreement from the trade deal and continuing its trend of record U.S. corn and soybean purchases.

The second-largest single-day corn purchase dating back 25 years was recorded on July 10th. The fourth-largest grain purchase of 1.76 million metric tons of corn was purchased by China four days later, according to Dr. Penson’s analysis of the USDA’s latest WASDE Report. This brings total Chinese purchases of U.S. corn in 2020 to nearly 4 million metric tons, the second-largest annual export volume on record after the 5.15 million metric tons purchased back in 2011.

“We do not feel like this is at the point of cutting off trade with China. We believe that China will continue to buy when prices are cheap—and currently, they see U.S. corn and soybean prices as cheap, from a historical standpoint.”

– Arlan Suderman, market analyst.

How will the New USMCA Benefit U.S. Agriculture?

Shifting to trade talks closer to our borders, the U.S.-Mexico-Canada Agreement (USMCA) officially went into effect July 1, 2020. This free trade agreement replaced NAFTA—the trade treaty signed in 1994—and created a more beneficial relationship between the first and third largest export markets for U.S. agricultural goods. These exports made up 28 percent of total ag exports in 2017 and support more than 325,000 American jobs. Below is a summary of key agricultural provisions in the USMCA by sector.

Dairy

Adjustments have been made to Canada’s milk class pricing system that will eliminate milk price classes 6 and 7 in January 2021, six months after enforcement began. Skim milk solids in Canada will also be set no lower than a level based on the U.S. price and potential surplus impacts will be eliminated.

Why it matters: The USCMA increases American access to the Canadian dairy market through new exclusive tariff rates and competitive market gains in U.S. dairy commodities including milk, cheese, cream, yogurt, ice cream, whey, and margarine.

Wheat

The USMCA will maintain tariff-free access to U.S. wheat for Mexico and eliminate the wheat grading system in Canada that puts American wheat farmers at a competitive disadvantage in the market.

Why it matters: Securing zero U.S. wheat export tariffs means American wheat farmers will be able to continue selling an estimated three million metric tons of U.S. wheat to Mexico per year which averages close to $1 billion in sales. Termination of Canada’s wheat grading system is a step towards leveling the playing field for U.S. wheat farmers.

Note: Despite the removal of Canada’s foreign grain grading discrimination system, several reports indicate this is only a first step in correcting the imbalance of trade for U.S. wheat. A limited number of varieties are approved for Canadian imports which still creates an access barrier for many American wheat farmers. 

Eggs and Poultry

Canada’s new tariff rate quota has increased for the U.S. poultry sector for the next six years with one percent growth for an additional 10 years.

Why it matters: U.S. poultry imports to Canada will increase by nearly 18 percent at the end of the sixth year of the agreement. In the same time frame, U.S. egg product imports to Canada will increase by more than 83 percent.

Wine and Distilled Spirits

All three countries agreed to avoid technical barriers of wine and spirit trade through non-discrimination methods regard the sale, distribution, labeling, and certification process.

Why it matters: Canada is among the top California wine importers, second only to the collective 28 countries within the European Union. This trade transparency clears logistical and regulatory hurdles for American winemakers and is expected to reduce the softening in U.S. wine sales to Canada that has been seen in recent years.

U.S. Agricultural Trade Updates Around the World

Japan

The United States has made headway through the implementation of the Phase One trade agreement with Japan by eliminating or lowering tariffs on more than 90 percent of U.S. food and agricultural goods. Reduced tariff products include beef and pork. Immediately eliminated tariff products include almonds, walnuts, blueberries, cranberries, sweet corn, grain sorghum, and more. A staged tariff elimination process will take place for other U.S. commodities including cheeses, poultry, wine, oranges, fresh cherries, egg products, and tomato paste. The American dairy sector has requested continued negotiations to amend existing trade inequalities that grant preferential access to the EU through the Japan-European Union agreement.

Brazil

Phase one of a mini trade deal between the U.S. and Brazil is expected to wrap up by the end of 2020 that covers trade facilitation, digital trade, and regulatory practices without the need of congressional support. However, the second phase is expected to be more comprehensive, addressing tariff reductions and barriers. Congressional support will be needed for the second phase, but reports indicate it will likely be unable to gain traction through the current bipartisan majority of Congress.

European Union

In June, U.S. trade representative Robert Lighthizer said prospects for a new trade agreement with the E.U. were dim. While formal trade negotiations began back in 2018, they have largely excluded agricultural products despite the growing U.S. trade deficit. Both countries have differing views on phytosanitary measures, technical barriers, and geographical indications that will make an agreement difficult to reach in the foreseeable future.

Britain

Since leaving the European Union earlier this year, Britain has now been in the process of negotiating trade deals with major trading partners like the U.S. However, they have reportedly been in no rush to come to an agreement unless certain import restrictions on commodities like British steel and lamb exports are lifted.

India

According to Indian Commerce Minister Piyush Goyal in late July, the U.S. and India are closing in on a trade deal which will open U.S. dairy markets and drop tariffs on agricultural goods in exchange for concessions on generic drug exports from India. A preferential trade agreement will likely be reached to lower tariffs before transitioning to a free trade pact.

South Korea

As one of the most reliable importers of U.S. agricultural goods, South Korea is 18 years into the 20-year U.S.-Korea Free Trade Agreement (KORUS) that eliminates duties on nearly two-thirds of U.S. ag exports and gives U.S. exporters preferential treatment. However, due to increased competition, U.S. exports were down 15 percent from 2018 to 2019 but the U.S. still remains the top supplier of agricultural goods for Korea. The ongoing trade relationship is strong but will likely face growing competition as South Korea pursues free trade agreements with more countries. 

Kenya

The U.S. and Kenya began engaging in trade discussions at the beginning of July 2020 and devised an agreement that is currently under review. Under the Trade Promotion Authority (TPA) laws, final negotiations must be finalized and signed by July 1, 2021. This deal could create new export opportunities for U.S. farmers and ranchers as Kenya imported $2.3 billion agricultural products in 2019 with only 3 percent from the U.S.

More than a Traditional Land Lender

The U.S. is among the largest agricultural exporters in the world. This means that American farmers and ranchers have an enormous responsibility not just to maintain the food supply for our nation but for the world. According to the American Farm Bureau Federation, roughly a quarter of all agricultural goods grown in the U.S. are exported each year. In 2019, the U.S. exported an estimated $112 billion worth of agricultural goods. From January through May 2020, more than $55 billion worth of U.S. agricultural exports have been recorded.

At AgAmerica, we are proud supporters of American agriculture and make it a priority to break the boundaries of traditional financing as advocates for our nation’s farmers and ranchers. Our mission is to share the critical role of these unsung heroes and equip them with the resources needed to get the job done.

To learn more about hot topics within the agricultural industry—such as farm labor shortages, crop diversification, the economic impacts of COVID-19, and more—visit our digital library of agricultural resources.