Economic Tidbits

Is China Tapped Out?

The top ten years for net farm income in Nebraska were recorded in the last twelve years. In fact, annual net farm income since 2010 exceeded that recorded in each year in the previous decade in ten of the twelve years. Only in 2017 and 2018 did net income fall to levels experienced in the previous decade. A couple reasons for the better income during the past decade come to mind. First, state ethanol production incentives and the Renewable Fuel Standard (RFS) boosted ethanol production and the demand for corn. Second, China emerged as a large purchaser of U.S. agricultural commodities, particularly soybeans and pork, and in more recent years, corn, and beef. 

China purchased a record level of U.S. agricultural goods, over $36 billion, during last federal government fiscal year (Oct. 1, 2021-Sept. 30, 2022). China typically is one of the top five buyers of Nebraska largest export commodities that consist of soybeans, beef, corn, and pork. The Nebraska Department of Agriculture reports total Nebraska agricultural exports to China in 2021 were $2.3 billion. 

However, questions are beginning to be asked as to whether the Chinese market for U.S. agricultural goods has tapped out. Several factors are contributing to the increasingly pessimistic outlook for Chinese purchases. Arlen Suderman of Stone X Group, in speaking at the Agricultural Business Council of Kansas City and AgriPulse Agricultural Outlook Conference, pointed to population changes as one factor. China’s population has stopped growing. India earlier this year surpassed China as the world’s most populous country. Less people mean less demand for food, particularly pork a staple in China, which also means less need for soybeans or corn for feed.

Intense competition from Brazil and Argentina in selling agricultural goods into China is another factor. Suderman said the U.S. share of China’s agricultural purchases has been shrinking. The growing geopolitical and economic tensions between the U.S. and China also portends of less agricultural trade. Chinese President Xi’s nationalism and international strong-arming, former President Trump’s launching of a trade war, and the Biden administration’s goal to “de-risk” the relationship between the U.S. and China complicate future trade between the two countries.

Chinese purchases of Nebraska agricultural goods are important to the economic viability of Nebraska farms and ranches. Agricultural sales to China will continue barring a “black swan” event which causes trade with the U.S. to cease. But Nebraska producers should not expect to see a repeat of the rapid growth in sales to China either. Demographics, competition, and political tensions will complicate future trade growth. Other international markets will be needed for Nebraska exports to grow. 

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