Could Dairy Be a Big Winner in the Phase One Trade Agreement?
January 17, 2020
Just days after the U.S. and China signed the Phase One agreement, agricultural groups, traders and producers are still trying to sink their teeth into the scope of the trade deal. China promised to buy $80 billion worth of agricultural goods over the next two years.
However, the deal is being met with a great deal of skeptic, including when it comes to market price action. John Payne of Daniels Trading says no matter how the markets are acting, agriculture shouldn’t discount how large of a deal the Phase One agreement could be.
“It's huge,” said Payne. “It's a huge because two of the two largest economies are going to start to play well together rather than fighting.”
Groups like AgResource Company say while the details are still vague, they think the heart of the deal will benefit major commodities like soybeans, pork, meats and dairy most.
“As we think this agreement going forward, it's a big deal for U.S. agriculture,” said Basse of Ag Resource Company. “It means that China is back in our marketplace they're now we're regular buyers.”
Holly Wang, an economist at Purdue University, thinks while traditional U.S. agricultural commodities could benefit first, the mix of goods heading to China – and need to meet the $40 billion mark- could spark new interest.
“It also opens doors for newer commodities, and especially a processed, higher value-added commodities,” said Wang. “So, the industry needs to really grasp that these next two years, get its feet set in Chinese market, because after the two years, they will have to compete with everyone else.”
Veronica Nigh is an economist with American Farm Bureau. She says whether China buys core agricultural commodities, or more specialty goods, there is room for growth, especially when it comes to dairy. She says the U.S. dairy export market share to China is a fraction of what it could be.
“That's an $11 billion market, we only have a 5% market share,” she said. “So, it seems like there should be some opportunity there. You know, the EU has 50% market share.”
Nigh went on to say while the EU had half the market share in 2018, New Zealand had 38%.
“If you displaced the Kiwis, that's $4 billion there.”
No matter what China buys, analysts say it will take time for China to ramp up its purchases, especially since the Chinese Lunar New Year is quickly approaching this month. Analysts say that’s a time when purchases from China are quiet. Even considering that timeframe, Kevin Duling of KD Investors thinks it could be two months before China is a serious buyer in the market again.