How will China’s Economic Slowdown Affect Nebraska Agriculture?

For the past several months, both US economists and farmers have been keeping a close watch of the economic health of China. Despite the fact that it’s on the other half of the globe, China’s economy has many effects on our own, namely in the agriculture sector, as the Chinese government is the largest importer of US grains in the world. As such, ag producers are weary of the possible effects of China’s current economic slowdown. Are these fears justified? Should Nebraska farmers be worried about the coming marketing year?

The decreasing value of Chinese currency and the stronger US dollar do make products from our country less attractive to foreign buyers, and US exports to China are already down 32 percent for soybeans. As it stands, American farmers are the world’s largest soybean producers and exporters, and China is our best customer. The value of our soybean exports was around $14 billion in 2014. The last thing US farmers want is for the soybean market to collapse.

Corn and soybean prices, already at five-year lows and backed by another record harvest, do suggest bearish outlooks for projected prices, and this is especially true if China decides to further cut back imports on the major grain crops.

Other economists don’t blame China’s economic slowdown for a possible decline in agricultural imports. According to a new report by CoBank’s Knowledge Exchange Division, the decline can be credited to multi-year surpluses of Chinese supplies in several commodities—including corn and soybeans. According to this report, China’s subsidization of its agricultural sector has resulted in mounting stockpiles and strained storage capacity, and is the real reason behind decreased imports.

CoBank’s director Dan Kowalski says, “This issue has been brewing for years and is a result of China’s drive to achieve food self-sufficiency. They’ve subsidized their agricultural sector to the extent that supplies have considerably outpaced increasing consumer spending and consumption.” This slump will certainly pose growth challenges for the global agricultural market in the coming year.

Whatever the cause, not all predict doom and gloom for US grain exports to China. Kansas State University economist Jay O’Neil isn’t too worried that China’s economic downturn will affect soybean exports. The reason, he says, is because, despite their food self-sufficiency goals, China still doesn’t grow enough food to feed its continually expanding population. The number one concern for the Chinese government, according to O’Neil, is food security, and the country will do what it has to in order to maintain it, regardless of the strength or weakness of Chinese currency.

Even Kowalski admits that in the longer term, there are plenty of opportunities for US grain exports to China.

“The long-term narratives of urban migration, an emerging service sector and the rising middle class in China remain intact, and these trends will continue to offer growth opportunities in agriculture well into the next decade.”

While this optimism is certainly welcome news, it’s certain that Nebraska farmers will continue to keep a close eye on the Chinese economy in the coming year.

Sources consulted:“How China’s Economic Slowdown is Impacting US Agriculture.” AgriMarketing. Henderson Communications. 06 Jan. 2016. Web. 13 Jan. 2016.  Morris, Frank. “China Slowdown May Squeeze Midwest Soybean Farmers.” NET Nebraska. Nebraska Educational Telecommunications. 02 Oct. 2015. Web. 13 Jan. 2016.