The “phase one” trade agreement with Beijing will bring larger U.S. plantings of soybeans and cotton this spring than now projected by USDA, as growers aim for revived exports to China, analysts said over the weekend. China is the world’s largest importer of the commodities but U.S. ag exports to China were halved by the tit-for-tat tariffs of the Sino-U.S. trade war.
Although the USDA says China will import more cotton from suppliers around the world in coming years, it points to smaller domestic stockpiles as the reason. In its 10-year agricultural baseline, the USDA repeatedly says its projections are based on conditions last fall. “Recent trade deals or discussions such as the ‘phase one’ deal with China, the USMCA agreement and a Japan-U.S. free trade agreement were not considered for these projections,” it says on Page 1 of the baseline, released on Friday.
Chief economist Rob Johansson is expected to address “phase one,” which de-escalated the trade war, at USDA’s annual Ag Outlook Forum, which opens on Thursday. A senior USDA official traditionally discusses the trade and farm-sector outlook on the first day of the forum. On Friday, the second day of the forum, USDA releases detailed estimates of crop production and consumption. Also on Thursday, USDA is scheduled to issue its quarterly estimate of ag exports.
Under “phase one,” China is obliged to purchase $40 billion a year of U.S. food, agricultural and seafood products through 2021. Exports generate 20 cents of each $1 in farm income. The USDA forecasts a 3 percent rise in net farm income this year as larger cash receipts offset the end of trade-war payments.
Coupled with current commodity prices and production costs, the “phase one” agreement will nudge farmers to plant less corn and more soybeans, said analyst Jerry Gidel of Midland Research on Monday. He pegged corn at 93 million acres and soybeans at 85 million acres, compared to USDA’s 94.5 million acres of corn and 84 million acres of soybeans.
“Given the $40 billion Chinese ag import commitment, a 1.95 (billion-bushel) export outlook is expected” for soybeans, wrote Gidel in a note to clients. That would be 55 million bushels more than projected by the USDA. At current prices, 55 million bushels of soybeans are worth $490 million.
Corn growers are likely to reap the largest crop on record this year, topping the 15.148 billion bushels of 2016, if plantings and yields meet the marks set by the USDA or by Gidel. Wheat, corn, soybeans and cotton are the four most widely grown crops in the nation.
The National Cotton Council projected U.S. cotton sales to China of 2.5 million bales in the 2020 crop year, compared to 2 million in 2019, in the economic outlook released at its annual meeting on Saturday. The U.S.-China agreement is grounds for cautious optimism in the industry, while trade disruptions due to the coronavirus are a significant wild card for global market, said the Cotton Council, an umbrella group for the industry. The United States is the world’s largest cotton exporter.
Growers intend to plant 13 million acres of cotton, including 12.75 million acres of upland cotton, enough to grow 19.8 million bales of cotton this year, according to the council’s widely followed survey of producers. By comparison, the USDA projected upland cotton plantings at 11.8 million acres.
The Congressional Budget Office also projected larger soybean and cotton plantings, and smaller corn plantings, than the USDA. The CBO baseline was constructed early this year, before the signing of the “phase one” agreement. It projected plantings of 92.3 million acres of corn, 85.5 million acres of soybeans and 12.2 million acres of upland cotton.
Both the USDA and CBO expect plantings of the eight major U.S. crops – wheat, rice, corn, sorghum, barley, oats, soybeans and cotton – to rebound from 2019, when the rainiest spring in a quarter-century prevented farmers from planting millions of acres of crops. The USDA and CBO project eight-crop plantings of 249.4 million acres. In 2019, the total was 238.4 million acres.
“Plantings for these crops averaged nearly 257 million acres during the recent peak of 2012-14 and 250 million acres between 2015/16 and 2019/20,” said the USDA.
To see USDA’s long-term baseline projections, click here.
The CBO’s baseline for farm programs is available here.