Measured by the bushel, the U.S.-China relationship has never been stronger.

Through the trade war and open hostilities at the highest political levels, pig farmers in China and crop farmers in the U.S. have become increasingly interdependent. Already America’s biggest customer of soybeans and sorghum, for this season China bought an unprecedented 11.2 million metric tons of corn, up nearly 1,300% compared with pre-trade-war purchases.

For the moment, both sides seem happy. The American imports have helped China feed its hog herd, which is recovering faster than expected after the African swine fever outbreak created a shortage of the country’s most staple protein. Meanwhile, U.S. farm profits are at a seven-year high, riding China’s demand and additional support from federal aid to agriculture.

China’s bought nearly 30 million metric tons of U.S. soybeans, the most for this point in the season since 1991 and 57% of America’s export sales. For sorghum, which is also a substitute for corn, China accounts for 80% of sales. Corn purchases, once negligible, rocketed to almost 30%.

But the deeper reliance is tenuous. As the trade war showed, that market can quickly evaporate, and experts warn that any number of geopolitical events – an incident in the South China Sea, for example, or further activity in Hong Kong – could end with another chill on Chinese imports.

“American agriculture has to be careful of putting too many eggs in the China basket,” said Tom Vilsack, who served as Agriculture Secretary from 2009 to 2017 and has emerged as a leading candidate for the position under President-elect Joe Biden. “I think the lesson that should be learned from the last couple of years is the need for American agriculture to continue to diversify so there’s always somewhere else the products can go, other than the storage bins.”

For now, purchases are so big that traders are even drawing parallels with the Soviet era’s “Great Grain Robbery,” another huge agricultural trade at a time of tensions between superpowers. Overall, the U.S. has nearly exhausted its export capacity.

“We are loading boats as fast as we can,” Gregg Doud, the U.S. Trade Representative’s chief negotiator for agriculture, said in an interview with Bloomberg at the end of October. “North of 95% of what can possibly be done in 2020 is already booked, and a huge chunk of that is soybeans to China.”

The farm belt, which voted overwhelmingly for the re-election of Donald Trump, is waiting to see how Biden will approach trade negotiations with China. Trump’s North American and Chinese trade deals, plus Covid-linked farm aid, have sustained the agricultural economy, said Jim Putnam, who grows corn and soy in Minnesota. “I was never a big Trump fan but he did get the Chinese attention with Phase 1,” he said. “I hope that the Biden administration can keep things going.”

Even if relations improve, China’s appetite for American crops reflects a combination of factors that won’t remain static: the strength of China’s post-Covid economy, the unanticipated consequences of the African swine fever recovery, and the limitations on the country’s own corn production.

When the disease killed roughly half the country’s herd after China first reported outbreaks in 2018, traders projected a five-year timeline for recovery. It’s been far faster. The herd is now at 80% of its pre-disease levels.

But the industry has changed. Multi-story “hog hotels” and large industrial producers have replaced the backyard farms where pigs grew fat on table scraps. The more professional operations mean hogs are eating more corn, soybean meal and other feed grains.

“Everybody focuses on soybean trade, but as the Chinese livestock industry is professionalizing their feeding practices, it means not only the soybean meal demand will grow, but it also means the corn demand grow as well too,” Greg Morris, president of Archer-Daniels-Midland Co.’s Ag Services and Oilseeds unit, said at a recent investment conference.

Outgoing U.S. President Trump has taken credit for the deal that resolved the two-year long trade war and required China to increase purchases of agricultural goods by 52% from 2017. As of the end of October, China had met 71% of the $36.5 billion target based on exports through August and sales scheduled for import by Dec. 31, according to the USTR.

Others are skeptical about the influence of the trade deal. “China doesn’t adhere to trade policies because they’d like to, it only happens when there is a need,” said Dan Basse, president of Chicago-based consulting firm AgResource. “I think China would have bought the same amount of grain relative to having a phase one agreement or not.”

China has already bought so much corn from the U.S. and Ukraine, traditionally its biggest supplier, that imports this year exceeded for the first time the 7.2 million ton quota set by the World Trade Organization. The USDA’s Foreign Agriculture Services expects China’s purchases to triple to 22 million tons this season.

Those are the projections that will inform U.S. farmers as they decide how to allocate their land for the 2021 growing season. Behind closed doors, American executives worry that they’re at a disadvantage. China closely guards the status of its reserves, and only its state-owned enterprises understand the full scale of the country’s demand. Typhoons in the northeast could have done serious damage to the country’s harvest or, as its agriculture minister said, this year could see a bumper crop. The amount of corn subject to lower tariffs is also opaque.

Les Finemore, chief investment officer at commodity hedge fund Imbue, drew a parallel with what’s known as the Great Grain Robbery of the 1970s. Hiding a severe domestic crop failure, Soviets bought millions of tons of American wheat in a frenzied spree, driving global prices higher and heavily contributing to inflation in the U.S.

In China, the goal is self-sufficiency. President Xi Jinping visited a corn farm in Jilin in July, urging local authorities to protect the fertile soil in the region. If the country can improve its yield by 2.5% per year, it could meet domestic demand by 2029, according to Xu Weiping, a chief analyst with the agriculture ministry. The country is reallocating land from non-grain crops to corn. ChemChina also acquired Syngenta in 2017, and plans to use genetically modified crops and other technologies to help get the country to 90% self-sufficiency.

Even if the political relationship sours, China has been developing its global supply chain. As part of its Belt-and-Road Initiative, it has heavily invested in Brazil, the world’s top producer of soybeans, and in the Black Sea region. It has also developed its own commodity-trading powerhouse, with the acquisition of Noble Group’s agriculture arm and Dutch grain trader Nidera BV, now merged and renamed Cofco International Ltd..

Despite the jumps in purchases, the scars of the trade war remain. Tariffs are still in place, a challenge the Biden administration will eventually have to deal with, said Joseph Glauber, a former USDA chief economist. The new president will also have to tackle issues such as intellectual property and business practices, which remain on the table.

Any sticking points over any of those issues could stress agricultural trade, as China’s tension with Australia is once again making clear. What began in 2018, when Canberra barred Huawei Technologies Co. from building its 5G network on national security concerns, has snowballed; this year, China moved to block imports of barley, wine, sugar, lobster, coal and copper ore.

“The issue has never really been about agricultural trade,” said Glauber. “The bigger issues have been outside of agriculture, and I think those are going to be the tough ones.”

–With assistance from Alfred Cang, Mike Dorning, Bei Hu and Dominic Carey.
© 2020 Bloomberg L.P.