INTERVIEW: Trump win could spur China to boost US agricultural imports

A Donald Trump victory in the upcoming presidential election could lead China to seek "improved relations" with the US by potentially boosting agricultural imports, Duane Lowry, founder of agriculture risk management consultancy Crop Production Science, said in an interview with S&P Global Commodity Insights.

“The common expectation around a Trump victory is the return of tariffs, but it might be wise to remember that under Trump, China signed a major trade deal for increased import of US agricultural products,” Lowry said. “They were on course to achieve these targets, had it not been for the influence of COVID.”

US exports of corn, soybeans and wheat to China fell between marketing year 2017-18 and MY 2018-19 but rose from MY 2019-20 to MY 2020-21, according to the US Department of Agriculture. The marketing year for wheat runs from June to May, while for corn and soybeans, it spans from September to August.

In MY 2020-21, China’s share of total US agricultural exports rose to 30.65% for corn, 57.28% for soybeans and 11.88% for wheat from 0.58% for corn, 47.7% for soybeans and 3.7% for wheat in MY 2017-18.

“Thus, I am not worried about any negative trade influences to agriculture from a Trump victory,” Lowry said.

Bearish scenarios priced in

Lowry said that the recent lows in corn, soybeans and wheat prices due to concerns about oversupply may have been priced in, leaving limited room for further downside.

“Overabundant supply narratives have driven prices to the bottom end of probable price parameters ... for ‘spot’ agricultural futures over at least the next 12 months, making it difficult to materially push values much lower than what we have already experienced, regardless of election results,” Lowry said.

The Chicago Board of Trade December corn futures dropped 1.08% to a weekly low of $4.1/bushel on Oct. 28, while January soybean futures declined 1.15% to settle at a weekly low of $9.86/bu on the day.

CBOT December SRW wheat futures ended at a monthly low of $5.58/bu after dropping 1.8% on Oct. 28.

“Price volatility could spike to the upside if we see any production threats in South America, and/or if the US drought map is not notably corrected by the time spring 2025 arrives,” Lowry said.

Platts, part of Commodity Insights, assessed US corn CIF New Orleans at $199.1/mt on Oct. 29, down 40 cents/mt on the day. The price fell $17.55/mt from a year earlier and $140.15/mt from Oct. 28, 2022.

Platts assessed the CIF New Orleans soybean price at $395.45/mt on Oct. 29, down $4.69/mt on the day. The price dropped $105.64/mt from a year earlier and $194.56/mt from Oct. 28, 2022.

“I do not think the main players expect any disruptions from election results, regardless of who wins,” Lowry said.

Biofuels growth

Lowry expects biofuel use of grains and soybeans to continue to grow in the coming years. "Right or wrong, I think most in agriculture favor an increase in biofuel demand/mandates," regardless of the 2024 election outcome, he said.

The USDA forecasts 138.4 million mt of corn will be used for ethanol and by-products in MY 2024-25, a decrease of 533,400 mt from the previous year. Meanwhile, soybean oil for biofuels is projected to grow 7.7% on the year to 14 billion lb MY 2024-25.

"The carbon agenda will also expand, regardless of who wins, which could further increase grain and soybean use for biofuels," Lowry said. "Energy companies are making a lot of investment in the carbon space, which in essence is preparing for larger and larger biofuels usage."

Grains industry outlook

Lowry said demand growth is expected to continue, and price developments are largely expected to be influenced by supply disruption fears associated with weather.

“Overall grain and soybean production will continue to grow, and this will be good for the grains industry but could mean tight margins for agricultural producers,” Lowry said.

The USDA has projected the US season-average farm price at $4.1/bushel for corn, $10.8/bu for soybeans and $5.7/bu for wheat in the MY 2024-25.

Season average farm price projections for the current marketing year are closer to MY 2020-21 levels, indicating declining producer margins in the US.

In MY 2020-21, farmers received $4.53/bu for corn, $10.8/bu for soybeans and $5.05/bu for wheat, according to the USDA.

“In my opinion, BRICS and the role of the US dollar are very important things to watch in the months and years ahead,” Lowry said. “At some point, a major devaluation of the dollar is possible, if not probable, causing commodity prices to sharply accelerate.”

The biggest downside risk to agricultural prices might be an expansion of carbon-inspired revenue streams to farmers. This shift could depress the raw prices of grains and soybeans, while producers’ net income remains more stable due to increased carbon-based revenue streams, Lowry said.

“Carbon programs and BRICS could both be influenced by the 2024 US election. But in all honesty, I think their path trajectory is already set in motion, with the speed and timing possibly impacted somewhat by the election outcome,” Lowry said.