Hoffman Ag Services Thursday, January 23, 2020  
 
 
 
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What Will China Buy?          01/22 08:51

   Chinese Grain Trade Waiting on Official Rules, Guidance on How to Implement 
Trade Deal

   The Chinese grain trade is still waiting for instructions on what they'll be 
expected to buy and how to do it, but experts say getting it done will require 
a lot more than just cargo ships.

By Lin Tan
DTN China Correspondent

   BEIJING (DTN) -- While the U.S. celebrated the signing of the first phase of 
the U.S.-China trade deal at the White House, Chinese commodity buyers are 
still confused about their role in how to make the deal happen.   

   "I do not know how the government will manage to import the required 
agricultural products," said China Agricultural University professor Jun Wang. 
"Chinese policymakers normally set a goal first, then they will try to figure 
out the way to solve the problem. But it will not be an easy job this time." 

   Based on the first phase of the U.S.-China agreement, China is expected to 
buy $36.5 billion of U.S. ag products this year and $43.5 billion next year. 
Both numbers were based on increases from a baseline amount set in 2017. 

   "We do not know how this money will be allocated to different commodities 
and what commodities China can buy," Wang said. 

   China imported a total value of $24.0 billion of agricultural products from 
the U.S. in 2017, of which $12.3 billion was spent on soybeans, $3.2 billion on 
forest products, $1.2 billion on fish products and $700 million on pork. 
Soybeans accounted for more than half of total imports. 

   That means China's agricultural products imported from the U.S. will 
increase 50% in 2020 and 81% in 2021 from 2017, the highest year in history. 

   Wang said there's a lot that has to happen for China to prepare for such 
rapid increase in imports. 

   "International trade for agri-products does not only mean trading, it also 
includes other sections in the chain, such as production, logistics, storage, 
processing and consumption. It will take a long time for the two countries, as 
well as the world market, to reestablish a balance to facilitate the deal," he 
said. 

   Wang said increasing imports of soybeans to 50% above 2017 levels, like the 
deal calls for, will be difficult. China imported 32.9 million metric tons 
(mmt), or 1.2 billion bushels, of soybeans that year. 

   "Given the same price, this means China will need to buy close to 49 mmt 
(1.8 bb) of soybean," he said. "There may not be a market in China for this 
amount."

   China has already purchased 11.7 mmt of new-crop soybeans from the U.S. this 
year. About 10 mmt of that shipped before the two countries signed the deal, 
with only 1.75 mmt waiting to be loaded on ships. Wang said the trade doesn't 
know whether that will count toward overall purchases. 

   "We already booked our positions all the way to June 2020 from Brazil," a 
purchasing manager of a crushing company, who could not disclose his name, told 
DTN. "There is not a lot of room for U.S. beans in the following months. Buying 
more old-crop beans from the U.S. will mean importing U.S. beans in the 
Brazilian market season. This will flood the China market."

   He said all of the country's grain buyers, including state-owned companies 
COFCO and SinoGrain, are waiting for detailed regulations on how to buy 
soybeans since the 25% import tariff remains in place under the terms of the 
deal. 

   Since China won't be lowering the tariff, the government will have to create 
a mechanism to offset the tariff payment, or else U.S. soybeans won't be 
competitive.

   Tariff rate quotas, which allow a certain amount of a commodity to be 
imported at a lower tariff rate, will also factor into China's purchasing 
decisions. 

   "China can buy other products with no tariff quotas, such as DDGs and 
sorghum, but the country still has tariff quotas on wheat (9.6 mmt), corn (7.2 
mmt), rice (5.3 mmt) and cotton (0.89 mmt)," Wang said. "It may be easier for 
companies to buy more DDGs and sorghum."

   Han Jun, vice minister of agriculture, said earlier this month that China 
will not increase its annual tariff quotas to accommodate the U.S.-China deal. 
Han was a member of the Chinese negotiating team. 

   It will be very difficult for U.S. to export ag products to be price 
competitive in China without a quota. For example, corn's import tariff is 1% 
within the quota, but once that quota is reached, it jumps to 65%.

   Pork and beef import will be possible, depending on the market demand. 
China's pork production declined 21.3% last year to 42.5 mmt, Wang said. 

   "The Chinese government may need some time to figure out how to allocate 
buying powers to the market, given the different ownerships of the companies in 
the country and the national holidays this week and next week, as Chinese 
people are celebrating the traditional Chinese New Year," Wang said. 

   He added that state-owned companies, such as COFCO and SinoGrain, will buy 
according to the government orders since the country will pay it. But for 
foreign companies and private companies, profit is still the first concern. 


(KD/AG)

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