China Trade Clash Could Wound U.S. Exports

September 29, 2016 02:10 PM

U.S. producers, facing a global grain glut, record bumper crops and markets trading multiyear lows, may see lower exports to China – and lower prices – as the result of an escalating clash over agriculture trade worth $20 billion.

China on Wednesday added additional anti-subsidy duties of between 10% to 10.7%, to the anti-subsidy duty of 33.8% it had already imposed last week on a U.S. animal feed ingredient known as distillers’ dried grains  and solubles (DDGS).

“The tariffs, which will directly affect only the top five U.S. exporters, could decrease China’s DDGS imports from the U.S. in half, from 6.8 MT to 3.4 MT,” according to Don Roose, president of U.S. Commodities. “It looks like they will try to use internal production as much as anything else."

But the ruling could have a ripple affect on the prices of other ag commodities, Roose says. “The biggest effect could be on U.S. domestic prices for soybean meal and on corn after that. DDGS are in direct competition with soybean meal.”

Roose also noted that if there is bigger supply of  DDGS in the U.S., it could push down prices of soybean meal for end users.

China has been the top buyer for the U.S. of DDGS, a by-product of corn ethanol used by feed mills as a substitute for corn and soymeal.

Wednesday's ruling is the latest round in an escalating trade clash between both countries. Last week, the U.S. filed a complaint at the World Trade Organization over China’s price supports for domestic wheat, corn and rice, arguing that they exceed the limits China had agreed to with the WTO. Prior to that, in August, China announced it would extend its anti-subsidy measures on imports of U.S. broiler chicken products for another five years.

U.S. corn exports to China have fallen over the last six years by 40%, according to a recent Reuters study,

China’s decision to sell its stockpile and to stop subsidizing its corn producers has made Chinese corn cheaper than imports, analysts say.

“They have an oversupply problem currently, which is why [corn] imports have gone to almost nothing,” explains Andrew Shissler, a partner with S&W Trading in Downers Grove, Ill. “I could see them trading corn out of the U.S., but not going to China – instead heading to Japan South Korea or Southeast Asia."

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