BEIJING / CHICAGO (Reuters) – With nearly seven months to go, an ambitious target of $ 36.5 billion for Chinese imports of US agricultural products this year may not be out of reach, but it looks like a very big stretch.
FILE PHOTO: Soybeans are harvested from a field at Hodgen Farm in Roachdale, Indiana, USA, November 8, 2019. REUTERS / Bryan Woolston / File Photo
At the end of May, imports were below 2017 levels, rather than 50% ahead as needed, and while orders for China’s main agricultural import, soybeans, have started to pick up, Searing levels of purchase would be needed to achieve the goal.
Add a rapidly deteriorating relationship between the United States and China, an upcoming US election, a global pandemic, and questions about how much soy China really needs, and farmers and analysts say it may be too much.
“It just doesn’t seem likely to me,” said John Payne, senior futures and options broker at Daniels Trading in Chicago. “If the global economy was more normal, then maybe, but you have this whole COVID problem.”
Beijing and Washington sealed their Phase 1 trade deal in January after two years of acrimony and a sharp drop in imports by one of the largest buyers of U.S. agricultural products.
Analysts at the time expressed reservations about the agricultural goods target, which is one quarter above the all-time high of $ 29 billion in 2013.
Still, Chinese buyers stepped up purchases this year of a range of agricultural imports, sealing record deals on corn and meat imports, sparking some optimism.
“If I had to rate them today, we would go from C to B, and if it continues, maybe we can start to see higher levels. But it must be a continuous and ongoing issue, ”said Dan Basse, president of AgResource Co in Chicago.
EYES ON SOYBEAN
The possibilities of achieving the objective will be clear in the coming months. Soybeans generally account for about half of China’s agricultural imports to the US, and the vast majority of purchases occur in the last three months of the year when supplies from Brazil’s top producer run out.
After a slow start, Chinese importers reserved more than $ 2.5 billion in soybean purchases in the United States in the past eight weeks.
“We may be about to really start increasing sales to China. I think they will soon start seeing these chunks of soy sales because Brazil is getting closer to selling, “said John Baize, president of consulting firm John C. Baize & Associates.
It is unclear, however, whether China will maintain its appetite for the next five months after its crushers picked up record volumes from Brazil.
Demand will also hinge on China’s recovery from a disease that killed hundreds of millions of pigs, reducing the need for feed.
For soy to represent half of the $ 36.5 billion target, buyers would have to take about $ 2.8 billion a month from July to December, according to Reuters calculations.
This monthly purchasing rhythm has never been maintained for more than two consecutive months and only during the fourth quarter of the year, most recently in 2016.
The fall in commodity prices due to the coronavirus pandemic presents an additional difficulty, since the agreement is directly linked to the value of imports. Soybean prices this year have averaged about 10% less than in 2016.
OTHER IMPORTS
In the meantime, trading in other products may have difficulty maintaining its initial track record.
Chinese buyers bought more than $ 500 million of corn in the first half of July, but importers are believed to have almost completed their import quotas and the country’s harvest will be ready for harvest starting in September.
China also spent record amounts on meat through May, including more than $ 1.2 billion on pork, according to USDA data, but overall spending on meat is relatively small.
Overall, China’s agricultural purchases in the United States totaled $ 6 billion through May, the latest data available, an increase of just 9.1% over the same period in 2019 and 31% below the 2017 level.
Sales have disappointed American farmers who are expecting a Chinese buying bonanza.
“It has been difficult, to say the least,” said North Dakota farmer Paul Sproule. “They have been doing some shopping lately, which we appreciate. But with the closure of the consulates and the problems with Hong Kong, relations are only getting worse. ”
Altogether, a daunting figure of about $ 25 billion in purchases will be needed for the second six months of the year, according to Reuters calculations.
The U.S. Department of Agriculture and the U.S. Trade Representative’s office did not respond to requests for comment. The Chinese Ministry of Commerce also did not respond to a request for comment by fax.
POLITICAL WILL
China may not violate the agreement if it does not meet the target due to the impact of the coronavirus. The agreement provides flexibility in the event of “a natural disaster or other unforeseeable event.”
At the same time, politics will come into play.
With bilateral relations in crisis, China can avoid becoming a bigger target for criticism by United States President Donald Trump during the United States election campaign for not making large farm purchases.
The final volumes of China’s soybean purchases will likely depend on whether or not Beijing chooses to replenish government reserves.
Overall, China typically requires 7 to 8 million tons of soybeans a month, a soybean crusher in northeast China noted.
“It would be a separate story if the beans go to state reserves,” he said.
China-based sources said China will want to avoid damaging the reputation of not honoring its commitments if possible.
“We will bite our teeth and implement the trade agreement. Otherwise, we don’t look good on the international stage, ”said a commercial manager for a state-owned company.
“But we would have to buy in an explosive way.”
Reporting By Hallie Gu in Beijing and Karl Plume in Chicago; Written by Gavin Maguire; editing by Simon Webb and Richard Pullin
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