China needs to buy ‘explosives’ to meet US agricultural import target – tech2.org

China needs to buy ‘explosives’ to meet US agricultural import target


BEIJING / CHICAGO (Reuters) – With nearly seven months to go, an ambitious $ 36.5 billion target for Chinese imports of US agricultural commodities this year might not be out of reach, but it’s like a big, big stretch. is feeling.

FILE PHOTO: Soybean is harvested from a farm on Haugen Farm in Royadale, Indiana, US 8 November 2019. REUTERS / Brian Woolston / File Photo

By the end of May, imports were lagging behind 2017 levels – 50% ahead of required – and while China’s main agricultural imports have begun to take orders for soybeans, scorching levels of procurement to hit the mark Will be required

Add to the rapid deterioration of US-China relations, an upcoming US election, a global epidemic, and the question of just how much soybeans China really needs, and farmers and analysts say it could spread far beyond.

“It just doesn’t seem possible to me,” said John Payne, senior futures and options broker with Daniel Trading in Chicago. “If the global economy was more normal, it might be, but you have this whole COVID problem.”

Beijing and Washington sealed their Phase 1 trade deal in January after imports of one of the largest buyers of American agricultural commodities and a two-year hard recession.

Analysts at the time expressed reservations about the goal of agricultural commodities, a quarter over the 2013 all-time high of $ 29 billion.

Nevertheless, Chinese buyers extended this year’s purchase of farm imports, sealing record deals in corn and meat imports, leading to some optimism.

“If I were giving them grades today, we went from a C to a B, and if it continues maybe we can start seeing higher levels. But it needs to be a constant, ongoing relationship, ”said Dan Bess, president of AgResource Co in Chicago.

Dine at SOY

The possibility of meeting the target in the next few months will be clear. Soybeans typically account for about half of China’s US agricultural imports, and the bulk of buying comes in the last three months of the year when supplies from top producer Brazil dry up.

After a slow start, Chinese importers booked more than $ 2.5 billion in US soy purchases over the past eight weeks.

“We may actually be on the verge of beginning to increase sales to China. I think you are going to start seeing these cycles of soybean sales soon because Brazil is close to selling, ”John Bais, Consultancy John C. President of Bice & Associates said.

However, it is unclear whether China will maintain its appetite for the next five months following its crushers, before record amounts were snapped up from Brazil.

Demand will also depend on China recovering from a disease that killed hundreds of millions of pigs, reducing the need for feed.

According to Reuters calculations, to make soybeans half of the $ 36.5 billion target, buyers would have to take some $ 2.8 billion every month from July to December.

This pace of monthly purchases has never been more than two straight months and only during the fourth quarter of the year, most recently in 2016.

The fall in commodity prices due to the coronovirus epidemic introduces an additional difficulty, which is associated with class with the value of imports. This year, soybean prices have been around 10% lower than in 2016.

Other imports

Trading in other products, meanwhile, can be difficult to capture their initial trajectory.

Chinese buyers purchased more than $ 500 million of corn in the first half of July, but importers are believed to have almost filled their import quotas and the country’s own crop will be ready for harvest from September.

According to USDA data, China spent a record amount of meat during May, with pork totaling more than $ 1.2 billion, but overall spending on meat is relatively low.

Overall, China’s US farm purchases were up to $ 6 billion through May – the latest data available – just 9.1% from the same period in 2019 and 31% below 2017 levels.

The sale has disappointed American farmers with hopes of a sugar-buying bonanza.

“It’s rocky to say the least,” said North Dakota farmer Paul Sporley. “They are buying something recently, which we appreciate. But relations are deteriorating with the consulates and Hong Kong closing issues. ”

All in all, according to the revaluation calculation, a challenging figure of purchase of approximately $ 25 billion would be required for the second six months of the year.

The US Department of Agriculture and the US Trade Representative’s Office did not respond to requests for comment. China’s Ministry of Commerce also did not respond to a fax request for comment.

political will

China cannot violate the deal if it misses the target due to the effect of coronavirus. The deal gives flexibility in the event of “a natural disaster or other force majeure”.

At the same time, politics will come into play.

With the turbulent bilateral relationship, China may want to refrain from targeting itself as a major target of criticism from US President Donald Trump during the US election campaign in thwarting large agricultural purchases.

China’s final volume of soybean procurement will likely depend on whether Beijing wants to replenish government reserves.

Overall, China generally requires 7-8 million tons of soybeans, known as soy crusher in northeastern China.

“It would be a different story if the beans went to the state reserves,” he said.

FILE PHOTO: A stall of the US Soybean Export Council has been observed during the China International Import Expo (CIIE) at the National Exhibition and Convention Center on November 5, 2018 in Shanghai, China. REUTERS / Aly Song / File Photo

China-based sources said China would like to avoid the reputational disadvantage of not fulfilling its commitments if possible.

“We will bite our teeth and implement the trade agreement. Otherwise, we do not look good on the international stage. ‘

“But we have to buy explosively.”

Reporting by Hailey Gu in Beijing and Carl Plum in Chicago; Writing by Gavin Maguire; Editing by Simon Webb and Richard Pullin

Our standard:Thomson Reuters Trust Theory.

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