DTN's Top 10 Ag News Stories of 2016

29 Dec 2016

By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- Each year, DTN publishes our choices for the top 10 ag news stories of the year. Today we continue our rundown with No. 3 focusing on China and its growing role in agribusiness globally, as well as complaints about its trade practices harming U.S. exports.

When everyone was looking at other seed-and-chemical merger deals, the China National Chemical Corp., known as ChemChina, swooped in to announce in early February that the giant state-owned corporation would buy Swiss-based Syngenta for $43 billion. The Syngenta deal is the largest foreign purchase by a Chinese corporation.

It was clear the potential deal, which has yet to close, could change the landscape in China on biotechnology. The acquisition also fits into the longer-term plans in China to modernize agriculture and improve self-sufficiency.

"I hope through this move we can begin to see much more common understanding of benefits of these technologies for agriculture -- a more level playing field which would lead to reduced trade tensions," said Davor Pisk, Syngenta's chief operating officer, at the time the sale was announced. "I think this could be the start of something very positive between China's agricultural trade relations and the U.S."

The ChemChina announcement reflected the unfair investment playing field for companies outside of China. While Chinese companies went on a buying spree, Chinese law continues to restrict foreign investment in the country to minority shareholders. That unequal playing field will continue because the Obama administration was unable to complete a bilateral investment agreement with China.

ChemChina is still working to lock up its financing with reports that it seeks to raise another $5 billion to close the deal.

THE EXPORT KING

When it comes to U.S. exports to China, soybeans remain king. For the 2015-16 soybean crop, the U.S. exported just over 29 million metric tons, or 1.14 billion bushels. At an average market price of $8.95, that equates to more than $10.2 billion.

Analysts also continue to have different views on just how much China has in stocks of major commodities such as corn. During the summer, Rabobank stated China's corn reserve could be as high as 250 mmt, or 9.8 bb.

The December USDA WASDE report cited China's 2016-17 corn supply and use starting with 110.7 mmt of beginning stocks; China will produce 219.55 mmt of corn, or 8.6 bb. That will leave China with a carryover next marketing year of 106.31 mmt. According to USDA, that equates to roughly 47% of the entire world ending stocks for corn.

Demand for meat protein is high in China, but the country maintains a ban on U.S. beef, poultry and eggs while only allowing imports of pork certified as ractopamine-free.

CASES ANNOUNCED AGAINST CHINA

In September, the U.S. Trade Representative's Office announced the first of two major cases against China over grain trade. The U.S. alleged China had subsidized its corn, rice and wheat farmers to the tune of nearly $100 billion. The U.S. brought the first case in the World Trade Organization against China over domestic crop subsidies.

The U.S. came back earlier this month to pursue a related trade case against China. The U.S. claims China refused to follow WTO rules on import quotas of corn, rice and wheat. The claim alleges that -- because of the high domestic subsidies -- China intentionally made it difficult for buyers to import cheaper global commodities. Had China followed the rules, the U.S. alleges, China would have bought another $3.5 billion worth of those grains on the world market.

U.S. wheat groups had commissioned multiple studies in recent years to examine China's domestic support. One study showed China was paying a minimum price of about $10 a bushel for wheat. Another study by Iowa State University showed China's subsidies were costing U.S. wheat farmers between $650 million and $700 million annually in lost income. Essentially, if China's price supports and domestic stocks were not so high, then China would be importing roughly 10 mmt of wheat, of which the U.S. would be expected to capture at least a share of that market.

"They are storing half the world's wheat and they are artificially inflating their prices to $10 a bushel and it is suppressing the entire world," said Chandler Goule, chief executive officer of the National Association of Wheat Growers.

THE PRESIDENTIAL CROSSHAIRS

Beyond all that actually happened with China and trade, there was the constant political harping with China by candidate and now President-elect Donald Trump. He has made it clear the trade deficit with China is unacceptable and threatened high tariffs on Chinese imports. Since the election, he has also antagonized China in different ways, most notably his phone call with Taiwan's president, breaking the longstanding "one China" policy that dates back to the Nixon era.

To work on relations with China, Trump tapped Iowa Gov. Terry Branstad to serve as U.S. ambassador to the country. Branstad has a relationship with Chinese President Xi Jinping going back 30 years when Xi visited Iowa as a young government agricultural official.

Looking ahead, Branstad might be the lynchpin to protect U.S. agricultural exports if Trump continues to poke the dragon early in his term.

Chris Clayton can be reached at chris.clayton@dtn.com

Editor's Note: You can find No. 2 in DTN's top 10 list in today's top stories.

Check Dec. 30 for No. 1 in our top 10 list.

(GH/ES/AG)