BEIJING / CHICAGO (Reuters) – With nearly seven months to go, an ambitious $ 36.5 billion target for Chinese imports of U.S. farm goods this year may not be achievable, but it looks like a big, big band.
PHOTO OF THE SHEET: Soybeans are harvested from a field at Hodgen Farm in Roachdale, Indiana, USA November 8, 2019. REUTERS / Bryan Woolston / File Photo
By the end of May, imports were going beyond 2017 levels – instead of 50% forward as needed – and while orders for imports from China’s main farm, soybeans, have started to pick up, there will need to be levels of buying that leave a mark.
Add a rapid deterioration in US-China relations, an upcoming US election, a global pandemic and questions about how much soy China actually has, and farmers and analysts say it can ‘there would be too much.
“It doesn’t seem likely,” said John Payne, a senior broker for futures & options with 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 from one of the largest buyers of U.S. agricultural goods.
Analysts at the time expressed reservations about the farm products target, which is a quarter above the $ 29 billion peak in 2013.
Still, Chinese buyers have stepped up purchases this year of a range of farm imports, sealing record deals in wheat and meat imports, leading to some optimism.
“If I had to classify them today, we would go from C- to B, and if it continues maybe we can start to see higher levels. But it needs to be an ongoing, ongoing affair, “said Dan Basse, president of AgResource Co. in Chicago.
EYES ON SOYA
The chance of reaching the target will be clear in the next few months. Soybeans typically account for about half of China’s U.S. farm imports and most purchases come in the last quarter of the year when supplies from Brazil’s top producer dry up.
After a slow start, Chinese importers have booked more than $ 2.5 billion in U.S. soybean purchases in the last eight weeks alone.
“We could be on the verge of really starting to bring sales to China. I think you’re going to start seeing these pieces of soybean sales coming up soon because Brazil is about to be sold,” he said. John Baize, president of consultancy John C. Baize & Associates.
It is unclear, however, whether China will sustain its appetite over the next five months after its caps earlier picked up record volumes from Brazil.
Demand also depends on China’s recovery from a disease that has killed hundreds of millions of pigs, reducing the need for feed.
For soybeans, which constitute half of the $ 36.5 billion target, buyers will have to take in about $ 2.8 billion a month from July to December, according to Reuters calculations.
This pace of monthly purchases has never been sustained for more than two straight months and only then during the fourth quarter of the year, most recently in 2016.
Declining commodity prices due to the coronavirus pandemic present an added difficulty, with the agreement being tied squarely to the value of imports. Soybean prices this year averaged about 10% lower than in 2016.
Meanwhile, trading other products, may find it difficult to maintain their early trajectory.
Chinese buyers bought more than $ 500 million worth of grain in the first half of July, but importers are believed to have almost filled their import quotas and the country’s own harvest will be ready for harvest by September.
China also spent record amounts on meat as of May, including more than $ 1.2 billion on pork, according to USDA data, but overall spending on meat is relatively small.
In total, China’s U.S. farm purchases totaled $ 6 billion as of May – the latest data available – just 9.1% from the same period in 2019 and 31% below the 2017 level.
The sale disappointed U.S. farmers hoping to buy a Chinese chance.
“It was rocky, to say the least,” North Dakota farmer Paul Sproule said. “They’ve been making some purchases lately, which we appreciate. But with the closing of consulates and issues with Hong Kong, relations are deteriorating.”
In all, a strong 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 Ministry of Commerce of China did not even respond to a fax request for a comment.
China may not break the deal if it exceeds the target due to the impact of the coronavirus. The agreement gives flexibility in the event of a “natural disaster or other unpredictable event.”
At the same time, the policy comes into force.
In troubled bilateral relations, China may want to avoid making itself a bigger target for criticism from U.S. President Donald Trump during the U.S. election campaign by failing to make large agricultural purchases.
China’s final soybean purchase volumes are likely to depend on whether Beijing chooses to replenish government stocks.
Overall, China usually needs 7-8 million tons per month of soybeans, noted soybean crusher in northeast China.
“It would be a separate story if the beans go into state reserves,” he said.
China-based sources said China must avoid damaging its reputation for not fulfilling its commitments if possible.
“We are biting our teeth and implementing the trade agreement. Otherwise, we would not look good on the international scene,” said a trade manager with a state-owned company.
“But we need to buy explosively.”
Reporting by Hallie Gu in Beijing and Karl Plume in Chicago; Writing by Gavin Maguire; editing by Simon Webb and Richard Pullin