China to Curb Purchases of U.S. Farm Goods, Fitch Solutions Says
(Bloomberg)
-- Relations between the U.S. and China are set to remain strained,
which could prompt Beijing to continue diversifying its imports of
agricultural goods and keep America’s share low, according to Fitch
Solutions.
China
may continue to limit soybean and other agricultural purchases from the
U.S. as geopolitical tensions persist, the research company said in a
note. Brazil will be a winner, with its share in the Chinese market
poised to stay elevated and could rise further for some commodities such
as meat and cotton.
Even though China has bought record amounts
of U.S. farm goods in recent years -- partly due to a trade deal signed
in January 2020 and mainly because of a massive expansion in its hog
herd -- relations between the world’s two biggest economies have
deteriorated. Tensions flared over Hong Kong, Taiwan, human rights, the
origins of the Covid-19 pandemic and many other flashpoints.
Fitch
Solutions highlighted other key agribusiness themes in 2022, including
soaring input costs and strained supply chains. It said U.S.-China
relationship poses a risk to logistics as escalating tensions could
disrupt trade routes.
Other details from the note:
Freight
and shipping costs peaked last year but are likely to remain elevated
in 2022 as economic growth picks up, port capacity remains constrained
and the ongoing omicron wave worsens a labor crunch.
Soaring
fertilizer and energy prices are seen as the greatest risk to grain
prices this year, according to a poll by Fitch Solutions.
Higher crude oil prices will boost demand for biofuel feedstocks, including sugarcane, beet, corn and vegetable oils.
Higher
gas and coal prices will increase the cost of fertilizers, which will
weigh on application, harvesting yields and agriculture production. It
may also spur a shift away from fertilizer-intensive grains such as
corn, toward soybeans and other crops.
Climate change
will hurt production in the U.S., Asia and countries located close to
the equator due to the difficulty in overcoming high levels of water
stress. This would likely reduce the production of key crops such as
wheat and rice, as well as arabica coffee.