China to comply with US deal at the expense of Brazilian exports: ADM
US agriculture giant Archer Daniels Midland (ADM) expects China to comply with its commitments of increasing its purchases of US farm goods this year – at the expense of Brazilian exports – and doesn’t think its business will be heavily impacted by the coronavirus.
As part of the phase-one trade deal between the US and China signed mid-January, China has committed to purchase an additional $12.5 billion worth of US agriculture goods in 2020 on top of the 2017 baseline figure.
“I do believe that China intends to comply with the phase one conditions of the deal and that has to come at the expense of Brazilian exports,” ADM’s CEO Juan Ricardo Luciano said on an investors call Thursday.
“I think to a certain degree it’s going to be a zero-sum game in which Brazil will export less and the US will export more to China,” Luciano said.
ADM’s CEO said that he expects the increase in US exports to be backloaded in 2020, meaning he expects to see an increase in shipped volumes during the second half of the calendar year.
Luciano added that he was “optimistic” to see that ethanol was included in the US-China trade deal but did not touch on reports that China has now backed away from its E10 blending commitment this year.
Corona impact
The group’s CEO said he doesn’t “expect a significant impact” on the business due to the ongoing coronavirus outbreak this season as its direct exposure to the Chinese market is limited. Although the company's main exposure to the coronavirus is through its share in Wilmar.
ADM owns a 25% stake in Wilmar and is one of China’s largest soybean crushers – has two plants in the city of Wuhan, the city at the core of the coronavirus outbreak.
The plants were already scheduled to be closed this week due to Lunar New Year celebrations.
“Since they were going to shut down for Lunar New Year, they have inventory of product and for normal demand, they will be able to supply,” Luciano said.
However, he added that “we will wait for the authorities to see how those operations will come back online,” while its offices in Shanghai will remain definitely closed until at least February 9.
While food demand in the restaurant/cafe sector will slip in the wake of the viral outbreak, the CEO expects this to be at least partially offset by an increase in packaged goods as people will dine more at home.
“ADM is in a very fundamental business, which is the business of foods. I think that we will be impacted to the extent that global GDP will be impacted and that will depend on the magnitude [of the outbreak],” Luciano concluded.
ASF impact
ADM’s CEO said that the effects of African swine fever (ASF), which broke out in August 2018 and had wiped out half the pig population in China by the end of last year, are stabilising.
“In respect to ASF, we think the worst is a little bit behind us in 2019,” the CEO said.
China’s 20 million mt protein gap has been filled up mostly by imports, in which “Brazil has been very aggressive” at filling demand, which had a positive impact on Brazilian soybean crush margins.
China – the world’s largest protein consumer and importer – has also shifted some of its livestock production to poultry and aquaculture while the pig population is gradually recovering.