Trump trade war brings opportunities to other countries
At a time when China and other countries have retaliated against the trade war provoked by Trump, Vietnamese cotton yarn producers, German pig farmers and Australian cattle farmers will have an opportunity.
The escalating trade tension between the United States and its major trading partners has begun to reshape the market landscape of agricultural commodities. Soybean growers in the United States may be the biggest losers, while Vietnamese cotton producers and German pig farmers may seem to be winners.
Chinese soybean buyers, such as the state-owned COFCO (Cofco), have turned to Brazil as a source of feed for this livestock feed. Soybeans are one of China’s commodities targeted at retaliation for US import tariffs.
However, another oilseed that can be crushed to feed livestock, canola or rapeseed, may also be a winner.
Before the trade tension between China and the United States, China has already acquired more canola seeds. Last year China acquired about 4.8 million tons of canola, an increase of one-third from 2016, most of which came from Canada. Canada is the world's largest exporter of canola.
JCMorgan analyst Tracey Allen said: "As long as the price is competitive, China wants to import more canola and rapeseed."
Although China's canola imports are only a fraction of the total imports of China's total imports of 95 million tons last year, China's hopes of increasing the purchase of canola are enough to keep Canadian canola prices strong. Since the beginning of this year, the price of the mustard seed futures contract that the Intercontinental Exchange (ICE) delivered in November has risen nearly 3% to 506 Canadian dollars per ton, and its premium relative to soybean has more than doubled to 85 Canadian dollars per ton.
Some investors have tried to profit from this trend. “As hedge funds do more canola, short soybeans, the spread between (canola and soybeans) has widened,” said Mike Jubinville, an analyst at Pro Farmer Canada.
Concerned about the future of the North American Free Trade Agreement (NAFTA) signed by the United States, Mexico and Canada in 1994, Mexico has begun to implement diversification of agricultural commodity purchases.
China’s inclusion of corn on the list of US products that will impose import tariffs on Friday has prompted the outside world to turn its attention to the whereabouts of US corn exports, as well as the largest destination country for US corn exports and its southern neighbor, Mexico. How to react. For the US steel and aluminum tariffs, this Latin American counter-measure does not include any corn-related initiatives.
But according to the International Trade Centre, Mexico imported less than 600,000 tons of corn from Brazil last year, 10 times that of 2016. Although this accounts for only 4% of Mexico's total corn imports, analysts say Mexico will use greater efforts to reduce its dependence on US corn.
“It’s hard to replace all imports from the United States, but up to 30% of imports can be bought from Brazil, Argentina and other countries,” said Stefan Worge, head of agricultural commodity market research at Rabobank. Stefan Vogel said.
Cotton is another bulk commodity on China's list of import tariffs. Considering that China is the second-largest buyer of US cotton, Chicago's cotton futures prices have fallen sharply as trade tensions escalated.
According to cotton trader Plexus, China will try to buy more cotton from sources such as Australia, West Africa and Brazil. India, another major cotton producer, is also likely to gain more market share.
Vietnamese cotton yarn producers may become another beneficiary, importing cotton from the United States and exporting cotton yarn to buyers in China and other places. Vietnamese cotton yarn producers have benefited from the fall in cotton prices as this has increased their profit margins.
JPMorgan analyst Allen said: "Vietnamese should be the beneficiary of the lower price of (US cotton)."
In June of this year, German pig farmers sent their products to Mexico for the first time because Mexico’s tariff on US pork created opportunities for US competitors.
The two major destinations of US pork exports, Mexico and China, will impose tariffs on imported US pork this week, and the market impact may expand.
Justin Sherrard, global animal protein strategist at Rabobank, said: “As (Chinese) buyers are looking for other sources of supply, (US) exports to China are declining.”
China raised the import tariff on US pork from 12% to 37% in April this year, and will raise it again on July 6.
So far, China is the world's largest producer, consumer and importer of pork, and Germany is a major pork exporter before the United States. Analysts said that Canada and Spain also hope to take advantage of the breakup of US-China trade relations.
Schrader added: "There has been a lot of reconfiguration of trade flows, which means opportunities for some people and risks for others."
Australian farmers may make a profit as China prepares to impose tariffs on US beef. On the shelves of Chinese retailers, American beef does not occupy a lot of positions, but American beef is considered a high-end product.
In 2017, US beef producers regained permission to enter the Chinese market for the first time in 14 years. Like Australian beef, US beef is sold at a higher price in China. In contrast, according to a US Department of Agriculture report, the largest source of imported beef in China, Brazilian beef, is considered a “high-volume product” in China.
Analysts believe that selling beef in China's high-end market, the focus is on building brand and confidence, they pointed out the possible harm caused by tariffs. ANZ's Australian Agriculture Director Mark Bennett said tariffs "may eventually limit market access and weaken a major competitor to Australian beef exports."