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February 3, 2020
By Isis Almeida
American farmers waiting for all the benefits of Donald Trump’s trade deal with China are going to have to wait a while.
There’s been skepticism about China’s ability to buy as much as $50 billion in additional U.S. farm goods ever since the pact was signed in mid-January. The head of a major global crop trader says that the Asian nation will make good on its pledges, but most of its purchases may come only in the second half of 2020.
Meanwhile, the spread of the deadly coronavirus is focusing attention on a part of the agreement that says the nations will consult “in the event that a natural disaster or other unforeseeable event” delays either party from complying with the deal.
All that could delay any boost for farmers, a core voting bloc for President Trump as he prepares to seek re-election later this year. U.S. growers have been roiled by the trade war between Washington and Beijing, losing market share to rivals in nations such as Brazil after China imposed tariffs on American agricultural goods.
While the so-called phase-one deal aimed at resolving the spat includes provisions for more Chinese imports, the world’s biggest consumer of commodities has vowed to follow a market-oriented approach. That means purchases are likely to be made at the time of the U.S. harvest, when prices are usually lower than in rival producers.
“I do believe that China intends to comply with the phase-one conditions of the deal,” Juan Luciano, the chief executive officer of Archer-Daniels-Midland Co., said Thursday. “The way we have estimated it for ourselves is back-loaded, so the exports to China are coming in the second half of the year.”
Some traders have expressed concerns that large agricultural purchases aren’t feasible if they are market-oriented. But if they aren’t, and the Chinese government orders its state-owned enterprises to buy U.S. products at higher prices than elsewhere, that could distort global crop markets.
It’s currently cheaper to buy soybeans from U.S. rival Brazil, which is gathering a record crop. And China now needs fewer beans after a deadly pig disease decimated its herd -- the world’s biggest -- reducing demand for the crop that accounts for the majority of its American agricultural purchases.
Additionally, the country also hasn’t dropped tariffs on U.S. products, creating uncertainty over its imports. While the Chinese government hasn’t made any official announcement on its plans, people familiar with the matter say the Asian nation will administer a system of waivers from retaliatory tariffs or cut duties altogether for a few products.
“I believe that if these commitments are fulfilled, it will be tremendously helpful,” Buddy Allen, president of the American Cotton Shippers Association, said in an interview at the Commodity Markets Council event in Miami last week. “But until the actual purchases occur, there will likely not be enough confidence in the marketplace to see significant improvement in value.”
It’s no surprise China hasn’t started buying American products. The trade deal enters into force only a month after it was signed.
U.S. officials aren’t concerned that the Asian nation has been picking up soybeans from Brazil or wheat from Australia, Canada and France, people familiar with the matter said, asking not to be identified. They also aren’t worried about tariffs, and argue that the onus is on China to make good on its pledges, according to the people.
Meat markets may be the biggest winner, with many non-tariff barriers set to come down and China facing a large protein deficit due to the African Swine fever disease.
CHS Inc., the largest U.S. farm cooperative, “remains hopeful that execution against those targets can be done in the most market-based approach possible to provide appropriate signals to farmers, the market and ag supply chain,” said John Griffith, senior vice president of global grain marketing and renewable fuels.
To contact the reporter on this story:
Isis Almeida in Chicago at [email protected]
To contact the editors responsible for this story:
Lynn Doan at [email protected]
© 2020 Bloomberg L.P.
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