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3C THE DAILY ASTORIAN FRIDAY, FEBRUARY 26, 2016 SHRINKING APPETITE Growers, investors nervous as China reduces its imports of U.S. crops By MATEUSZ PERKOWSKI Capital Press C hina’s appetite for U.S. farm products once seemed limitless. The nation of 1.3 billion people, with its wealthy emerg- ing middle class, demanded shiploads of American crops ranging from almonds and apples to raw materials such as cotton. Overall, the annual value of food exported to China surged in value roughly 15 times over since the dawn of the 21st century, peaking at nearly $26 billion in 2012. No longer. Since then, demand has ebbed. Imports of farm goods leveled off in 2013, receded a bit in 2014 and fell in value by 17 percent in 2015. However, experts say the slowdown in imports from the U.S. isn’t necessarily cause for alarm, especially in light of the white-hot growth seen over the past decade. ‘No miracle markets’ But they add that the anx- ieties are ampli¿ ed by the uncertainty about the true state of China’s economy — as well as investments made by U.S. farmers and food compa- nies that assumed the growth would continue unabated. While it’s still possible to make headway in the Chinese export market, people were fooling themselves if they thought the nation’s demand was boundless, said Nick Kukulan, CEO of Paramount Export, an Oakland, Califor- nia , company that ships fresh fruits and vegetables to China . “There are no miracle mar- kets,” he said. “It’s all just global competition.” Cotton provides a harsh example of the vicissitudes of the Chinese market. When China was a top buyer of cotton around 2011, the crop was fetching more than $2 per pound for U.S. farmers. Now, the country isn’t even in the top ¿ ve of global cotton buyers and prices are hovering around 60 cents per pound. “It’s one of the key factors keeping cotton prices low. Chi- na’s policies had a large impact on the world’s market,” said Jody Campiche, vice president of economics and policy for the National Cotton Council. To some extent, the reduced value of overall U.S. farm exports to China can be attributed to the global price decline for major commod- ities, particularly soybeans, said Michael Swanson, chief agricultural economist for Wells Fargo Bank. Soybeans that topped $14 a bushel in 2013 are now selling for about $8.70 a bushel. China’s economy is also growing at a slower clip, but it must be remembered that its underlying economic base is now a lot bigger, Swanson said. ‘Poor visibility’ Investors are also nervous because of the “poor visibil- ity” into the Chinese economy offered by its government, he said. While China’s of¿ cial eco- nomic growth rate was about FREE PUBLISHED THE FIRST FRIDAY OF EACH MONTH January 2015 Don Jenkins/Capital Press Dockworkers unload containers in January from the OOCL Rotterdam, a Hong Kong-registered vessel. U.S. agricultural exports to China, 10 years China vs. U.S. — agricultural production and trade statistcis (Billions of dollars) 17.6 Statistic China United States 1.37 billion 321.4 million 270.1 million 10.9 million 3.7 million 3.8 million 54.7% 44.5% 266,440 87,200 8.9% 1.6% Total value of ag imports $140.4 billion (2013) $111.7 billion (2014) Total value of ag exports $79.8 billion (2013) $150 billion (2014) Population (2015 est.) Labor force in ag (2012 est.) Total land area (sq. mi.) Ag land as percent of total (2011 est.) Irrigated land (sq. mi., 2012) Ag as percent of GDP (2015 est.) 12.1 6.7 2006 Until now, China’s momen- tous economic rise was sup- ported by massive govern- ment investment in bridges, highways, ports and housing, which was accompanied by a mass migration of people from rural areas to the cities. That cannot go on forever, so China must now shift from an economy that depends pri- marily on exporting goods and Capital Press ess Chronicling the Joy of Busin tlight: Taylor remain in the Columbia-Pacific Region exact growth rate, but experts generally agree China is not in a recession and its economic expansion is still faster than that of the U.S. Even so, the slackening in China is seen as having a destabilizing effect. ‘Tesla of the world’ With an annual growth rate that once topped 15 percent, China’s economy was viewed striverbusinessjournal crbizjournal.com • facebook.com/coa Volume 10 • Issue 1 as being similar to a hot Internet company or technology startup. “China is the Tesla of the world,” Swanson said, referring to the electric luxury car com- pany whose shares have quin- tupled in value in recent years despite posting net losses in the hundreds of millions of dollars. Surging stock prices for such companies are based on their “growth story” of future earnings, rather than current Massive spending For more information call 503-325-3211 NEWS Seaside Muler and Of-Road 21 revs up its reputation page The Sadie out of South Bend, Wash. page 24 ’12 crbizjou rn a l.com 2015 building infrastructure to one that’s oriented toward domes- tic consumers, said Lindsey Piegza, chief economist with the Stifel investment ¿ rm. “That’s not a transition that occurs overnight,” she said. With China’s extensive, and perhaps excessive, building boom winding down, there’s bound to be a negative impact on the price of raw materials. “You’re talking about a decline in aggregate demand,” Piegza said. The effect is already appar- ent in the U.S. log market. U.S. log shipments to China plummeted 40 percent in 2015 largely because build- ers have bought fewer hem- lock logs, which are used for concrete formwork, said Gor- don Culbertson, international business director for the For- est2Market consulting ¿ rm. “Their housing construc- tion is down a great deal. It has reduced the competition for for- est products,” Culbertson said. Meanwhile, U.S. goods are more expensive in China because the dollar has gained in value against the yuan by more than 8 percent in two years, from roughly 6 yuan in 2014 to 6.5 yuan today. As the U.S. dollar has strengthened against the Chi- nese currency, it has prompted China to buy logs from other countries such as New Zealand, he said. “It’s magni¿ ed by the exchange rate.” Now inserted into The Daily Astorian and Chinook Observer PacifIc in the pot biz page 10 BOAT OF THE MONTH ’09 7 percent in 2015, some U.S. analysts believe it was actu- ally as low as 4 percent based on factors such as steel output and coal use. “People still doubt the data that comes out of China,” said Dan Kowalski, director of industry research for CoBank, a major agricultural lender. “Are they telling us it is as bad as it is, or is it worse?” Estimates may vary on the Alan Kenaga/Capital Press $20.2 billion Down 16.6% from 2014 8.3 Konnie Kong, right, speaks with Henry Chen of Guangzhou Yangcheng Food Co. and in- terpreter Willow Zheng during a recent meeting in Portland, that was part of an inbound trade mission by Chinese food buyers. Source: USDA ERS, FAS; www.cia.gov 18.9 24.2 13.1 pro¿ ts and dividends, he said. If that story begins to appear too optimistic, people fear they’ve overpaid even if noth- ing catastrophic has occurred. “Any change in that growth projection suddenly panics that investor,” Swanson said. The analogy is pertinent to agricultural sectors such as the almond industry, whose for- tunes were propelled to new heights by China’s explosive economic growth. China “came out of nowhere” to become a major almond buyer, which caused the value of California almond orchards to triple in the past ¿ ve years, Swanson said. Farmers who planted or bought orchards at peak prices may face ¿ nancial problems if their investment was based on unrealistic assumptions about continued rapid growth in Chi- nese consumption, he said. “You could be devas- tated by even a softening in demand,” he said. stry spo allenges Inside: Indu copes with ch Shellfish farm an conditions oce nging s optimistic despite cha NEWS County makes a splash 25.9 25.5 Source: USDA FAS Alan Kenaga/Capital Press
