Main Takeaways As Phase One Concludes

For over two years, one of the most talked - about stories in agriculture has been the Phase One agreement with China. From speculation in late 2019 about its potential provisions, to thorough breakdowns of its official text, to honest debates evaluating its efficacy, this one-of-a-kind agreement has sparked near-endless amounts of discussion from the coffee shop to the board room.

December 31, 2021, however, marks the final day of the agreement’s two-year window. The grain sorghum industry has contributed to the Phase One discourse as much as any commodity, given the importance of the Chinese market to our producers. Throughout the term of the agreement, we asked some important questions: Can this agreement really drive more U.S. sorghum to be sold to China? Will China meet its purchase commitments?

As I reflect on where we were two years ago, however, one question we all asked in February 2020 looms larger than others. Will Phase One restore a normal, robust trading relationship with China? Or will trade evaporate after the two-year window expires? I cannot see the future, but I do feel confident asserting that China’s massive demand for U.S. sorghum is driven more by pure market factors than any statutory provisions in a trade agreement. For example, In November, after months of low prices, Chinese domestic corn surged back past imported U.S. sorghum prices and Chinese buyers responded by purchasing 85 million bushels of U.S. sorghum in the final two months of 2021 – an unprecedented run since China entered the market in 2013.

As long as U.S. sorghum remains unhindered by retaliatory tariffs or tariff-rate quotas like China has on corn, rice, and wheat imports, we’re confident its access to the Chinese market will remain a matter of basic economics. So while we remain optimistic about what’s coming after Phase One, it’s still important to answer questions about the successes and shortcomings of the agreement. Did purchase requirements drive China to buy more sorghum than the base year of 2017, and how much U.S. sorghum they end up purchasing?

These sorghum trade totals were generated by tallying each USDA Weekly Export Sales Report in weekly updates we send to our membership. For previous years, we’ll pull from USDA FAS’s Global Agricultural Trade System (GATS), which aggregates calendar year export volume and values, but uses a slightly different methodology. Therefore, the app-roach we’ll use here may not be what the U.S. and Chinese governments implement to precisely gauge the success of the agreement, but it should be satisfactory for broad characterizations.

First off, let’s review 2017, the baseline calendar year for the agreement. That year saw $24 billion in U.S. agricultural sales to China - $838 million of which was contributed by U.S. sorghum. Per Phase One, China would be required to purchase $12.5 billion over that total in 2020 ($36.5 billion) and $19.5 billion over the 2017 total in 2021 ($43.5 billion). According to GATS, China purchased 4.6 MMT (181 million bushels) in 2017.

Now, commodity-specific targets for the agreement were not made public, so the only metric we have to evaluate U.S. sorghum’s success in meeting Phase One’s purchasing requirements involves extrapolating from the 2017 baseline using the annual targets for total agricultural exports.

So how did the last two years stack up to these estimated targets?

While neither year officially reached the targets extrapolated from the 2017 baseline, the value of exports in 2021 has nearly hit the target with two months (November and December) not yet counted. As I mentioned above, the China market caught fire again in those months, with 85 million bushels in new sales and 50 million bushels in exports. We won’t have the official GATS numbers for a few more months, but there’s a good chance U.S. sorghum does end up hitting its 2021 targets.

Regardless if those arbitrary metrics are met, these last two years of the sorghum trade with China have been excellent by any standard. Leaving behind Phase One’s approach of measuring calendar years, the 20/21 marketing year stacks up with the very best marketing years since China entered the market in 2013:

In terms of dollar value for those exports, it’s second only to the 14/15 marketing year, reflecting the strong prices many sorghum farmers received over the last year (note these marketing year totals are different than the calendar year totals in the above tables).

No matter how you measure it, the U.S.-Chinese sorghum trade benefitted greatly from the last two years. By all accounts, the Biden administration has no intentions of pursuing a Phase Two deal, but that shouldn’t come as any concern for U.S. sorghum producers. Economics, not trade policy, drives this trading relationship and, if the last two months are any indication, Chinese demand for affordable, reliable U.S. sorghum isn’t going anywhere now that Phase One is in the books.