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DAVID KRUSE

By Staff | Aug 17, 2018

China was on track to import more than 100 mmts of soybeans before putting on the brakes. For years, Chinese soy demand was on a growth trajectory that was supported by increasing consumption. As its peasant class was lifted to become consumers by economic growth, calorie intake and quality of diet improved in China supporting significant growth in food import demand to fill that need.

China made the strategic decision to rely on the US for soy. That has stopped for the time being as Beijing manages around new origin of soy supply as a result of retaliatory tariffs. By subsidizing internal production, finding replacement feedstuffs, changing the source of foreign origination and modifying domestic demand, the global supply chain that was serving China will be completely changed if this trade war protracts. If gone on too long, even after an eventual trade resolution between the US and China, too much will have been altered along with an era of distrust for things to return as they were in the current relationship between the US and China relative to Ag trade.

Many repeat the mantra that that I tire of hearing that, “They have to eat,” suggesting that “they” will be forced to buy US commodities. They do have to eat, but they will pay others to grow them food and they will make the US their residual supplier of last choice.

Tremendous financial incentive will be given South American soy producers to be the primary source of supply. We have many Brazilian contacts and they are saying that “Trump is the best president that they ever had.” Infrastructure improvement in South America will demand a long-term commitment from China, one that I am told that they are not quite ready to make yet, hoping for a resolution of the trade war. Once they make financial decisions to commit to that supply chain they will not be easily reversed. The US produces over 4.4 bln bushels of soybeans and China bought half of them, dwarfing all other buyers. The EU will import approximately 15 mmts of soybeans, predominately non-GMO soybeans. They buy about 4 mmts from us now. They could double that amount and it would mean almost nothing compared to what we lost from China. Comparative imports of soybeans of 15 mmt versus 100 mmts shows how small the EU demand really is up against Chinas. Brazil only produces about 5 mmts of non-GMO soybeans and we assume that the EU buys most of those so that is the demand that will shift to us.

The EU uses the ‘precautionary principle’ rather than adhere to WHO science-based trade rules and uses it to ban our GMO food/feed stuffs. Trump says that he opened the EU market and they would be buying lots of soybeans from us. When you get to the bottom of things, Trump is spreading manure. They did not surrender the precautionary principle, they did not drop their ban on GMO products and they say they did not agree to buy a specific amount of US soybeans. They also claim to not have agreed to even include Agriculture in future talks, contrary to Trump’s claim that he opened their market to US farmers.

The scary thing is that I think that Donald believes his own narrative. He creates his own reality and his advisors have to adapt to it. Trump’s version made no sense. The EU was not going to surrender their precautionary principle or their phyto-trade barriers of GMOs, hormone fed beef, ractopamine pork or even the chicken rinsed in a chlorine bath at the first meeting in Washington, if ever.

Donald says that he opened up the EU market to farmers. Yes, they will buy more US non-GMO soybeans because they are forced to come here by the Chinese tariffs making Brazilian beans too expensive and ours cheap. They could bid up non-GMO beans in the US but they made no concession to drop their GMO barriers.

First, Trump needs to force the EU to end their trade barriers on US Ag commodities. They need to buy the same soybeans, corn, beef, pork and chicken that US consumers do. Until that happens their market is closed. If EU officials agreed to that, there would be massive riots and protests in most EU countries against Brussels. Their Ag sector would go literally crazy. German and French officials say that there was no agreement to buy more US soybeans.

The EU spokesman in Brussels said after Trump’s comments, “On agriculture I think that we’ve been very clear on that -that agriculture is out of the scope of these discussions. . . we are not negotiating about Ag products”.

What Trump said and what the EU spokesman said could not be more opposite. He is just playing farmers, telling them what he thinks they want to hear knowing that about a third of them will believe him no matter how thick he runs the manure spreader. Claims made by Trump of the negotiation were going to get EU head Claude Junker in trouble back home. He had no such authority to make such concessions. Junker said, “The US heavily insisted to include the whole field of Agriculture products in the negotiations. We refused because I don’t have a mandate and that’s a very sensitive issue in Europe.”

China is building the new silk road to connect with European markets. Given the heated blowback from the trade wars, Trump wanted to cool things off and dial things back with the fall election approaching. There is a time out on the acrimony from Trump and the EU but nothing more. Europe’s markets have not been opened to US farmers.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

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