China to curb purchases of US farm goods in 2022 as ties fray: Fitch Solutions

China may continue to limit soybean and other agricultural purchases from the U.S. as geopolitical tensions persist. PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - Relations between the United States and China are set to remain strained, which could prompt Beijing to continue diversifying its imports of agricultural goods and keep America's share low, according to Fitch Solutions.

China may continue to limit soya bean and other agricultural purchases from the US as geopolitical tensions persist, the research company said in a note.

Brazil will be a winner, with its share in the Chinese market poised to stay elevated and could rise further for some commodities such as meat and cotton.

Even though China has bought record amounts of US farm goods in recent years - partly due to a trade deal signed in January 2020 and mainly because of a massive expansion in its hog herd - relations between the world's two biggest economies have deteriorated.

Tensions have flared between the two superpowers over Hong Kong, Taiwan, human rights, the origins of the Covid-19 pandemic and many other flashpoints.

Fitch Solutions highlighted other key agribusiness themes in 2022, including soaring input costs and strained supply chains. It said the US-China relationship poses a risk to logistics as escalating tensions could disrupt trade routes.

Some other details from the Fitch note are that freight and shipping costs peaked last year but are likely to remain elevated in 2022 as economic growth picks up; port capacity remains constrained; and the ongoing Omicron wave is worsening a labour crunch.

But soaring fertilizer and energy prices are seen as the greatest risk to grain prices this year, according to a Fitch poll. Higher crude oil prices will boost demand for biofuel feedstocks, including sugarcane, beet, corn and vegetable oils.

Higher gas and coal prices will increase the cost of fertilisers, which will weigh on application, harvesting yields and agriculture production. It may also spur a shift away from fertiliser-intensive grains such as corn, toward soya beans and other crops.

Climate change will hurt production in the US, Asia and countries located close to the equator due to the difficulty in overcoming high levels of water stress. This would likely reduce the production of key crops such as wheat and rice, as well as arabica coffee.

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