January 31, 2020

Could Coronavirus Dent China's $40 Billion Ag Purchase Pledge?

 |  By: Tyne Morgan

Coronavirus may be one of the black swans in the global markets this year, as it’s already shaking up market outlook. As the virus spreads and the impact is assessed, it’s hitting the global markets the hardest. But could agriculture be next?  

“It’s very difficult to say at this stage,” said Christian Lawrence, senior market strategist at RaboBank. 

He said the only comparison analysts and economists have at this point is the SARS virus outbreak in 2003. 

“Then, we did see a meaningful impact on global growth,” he said. “But at that time, China was only around about 4% of global GDP, China's now 16% of global GDP. If the coronavirus gets a lot worse, we start to see it really impact trade, really impact travel, this could have a meaningful impact globally. And quite frankly, the moves we've seen so far would just be the start.”

Lawrence says if the virus is contained and the impact diminishes, the economic story could quickly rebound. 

“If this is contained and we see it start to disappear, then we could just see a restriction of the moves that we've seen recently,” he said. “It really just depends on what happens with this virus going forward. And unfortunately, I just don't know.”

The uncertainty is gaining traction in more than just the stock market. While Lawrence fears the possible spread of the disease could take its toll on exports, particularly in China, USDA is analyzing how the virus could impact China’s promise to buy $40 billion worth of U.S. ag goods this year. 

Greg Ibach, Undersecretary for marketing and regulatory programs at USDA,  told Farm Journal he’s confident Chinese consumers will continue to eat, no matter what happens with the spread of the virus. 

“Even if people are staying home, and they're not out and about, they need to eat,” he said. “For agriculture, who wants to ship food to China, I'm still very optimistic that China is going to have a need for food. They're going to have demand for food, and that they should be able to fall within that $40 to $50 billion per year expectation that the President has them in.”

Ibach said USDA is continuing to work on Phase One of the trade deal with China and has a trip planned to China next week. However, Coronavirus could derail USDA from traveling to China and meet with groups after the Lunar New Year. 

“My APHIS staff back at you USDA is going to be working next week with China,” he said. “We plan to be in China, but we're going to figure out alternative methods to be able to negotiate that if the coronavirus is going keep us from entering China.”

Even if the trip is delayed, Ibach told Farm Journal that USDA is working on a method to keep track of what China buys. 

“We're monitoring the purchases that China is making,” said Ibach. “We're putting in the infrastructure at USDA, because everything that leaves the U.S. ports has the phytosanitary certificate that says which country it's going to. So, we're setting up a system to be able to monitor China's purchases to be able to gauge during what season they we think they should be buying certain things.” 

Ibach said that information will then be reported back to the President, but he’s confident China will follow through on its promise this year.