Can China’s floods help to reconcile the US-China trade relationship?
This summer has seen dramatic storms in China with the worst flooding in more than 20 years. Cropland the size of the US state of West Virginia flooded with an estimated $21bn of economic damage.
Flooding came toward the end of the growing season, destroying rice, corn, soy and other crops in parts of the Yangtze River Basin, where 30% of China’s corn and 40% of its soybeans are grown. The floods were so alarming that the price of corn in China rose 20% y/y and soybeans rose 30% ytd in July, the fastest pace since 2015.
Enter American agriculture. Although China committed to purchases of $32bn of US agriculture under Phase 1 of the US-China trade agreement, concerns over compliance have plagued bilateral relations in 2020. However, weather woes seem to be a major driver of new purchases of US agriculture. China’s commitments for imports of US corn, soybeans and soy oil are up 167%, 324% and 234%, respectively.
This demand from China should help US corn and soybean prices, which have been down on USDA estimates of record crop yields this season. While we have expected falling corn and soybean prices in August, we do expect higher prices to emerge in September/October.
Soybean Futures Continuous Contract (S1) forecast through December 2020
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CBOT Corn Futures (C1) forecast through December 2020
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While the floods in China are tragic, they have forced détente. China and the US are important trade partners, and US agriculture capacity has made it an indispensable source, even in the darkest days of the trade war. Hopefully, a new dawn can emerge.
This CI Weekly newsletter is originally published at https://www.completeintel.com/2020/08/16/china-floods/. You can join our weekly newsletter by signing up here: https://www.completeintel.com/newsletter-signup/. Thank you
