Trade War is Sometimes Not the Only Factor in Diminishing Returns for Exporters

US – CHINA – WORLDWIDE – Amidst all the talk, and indeed action, regarding trade wars, a recent survey by shipping association BIMCO gives an idea of how other factors can also have a huge impact on the levels of freight trade, going beyond the ability of such as shippers and forwarders to affect rises and falls.

Seasonal variability often impacts cargo flows and the latest figures for exports of soya beans from the US to China show a dramatic collapse with an 82.8% fall in the first seven weeks of the 2019/2020 marketing season compared to the same period of the 2017/2018 marketing year when there were no trade restrictions in place.

As the 2018/2019 season figures for an equivalent period was even lower at just 200,000 tonnes as against the previous year’s 6,400,000 tonnes, one might assume this year’s 1,100,000 tonnes was actually a big improvement, but there are other factors at work here according to BIMCO’s market analysis team.

China has authorised a rise in soya imports from 20 million tonnes to 30 million tonnes before it will slap the 30% tariff on which would seem to clear the way for US exporters to return to business as usual but, as BIMCO points out, that is where talk and action can diverge.

China has made it clear that it will only buy what it needs, a fairly obvious argument one might think, however the country’s pig population has been decimated this year by African swine flu leading to a reported culling of over 40% of the animals as compared to figures a year earlier.

In latter years Chinese pig farmers have fed their stock on imported soya, mainly from the US as prices were attractive. The tariffs imposed cut straight into that whilst the news the allowable tonnages to be imported tariff free were to be increased caused the price of US soya to rise in the expectation that exports to China would shoot back up.

Soya also comes into the market from other sources however, and cheaper off season deals have been available from Brazilian suppliers. As any business knows getting trade is hard whilst retaining it if prices remain stable is a lot easier.

The US producers then have been hit by several factors, the initially low tonnages before increased tariffs kick in, cheaper beans available elsewhere, a dramatic drop in demand due to the culling of pigs in China and of course - these are pigs, and as even non farmers know, they can be successfully raised on a variety of foodstuffs. It may prove much harder for the US to recover this particular market than it first believed.