Tag Archives: soybean imports

China Is Also Buying More From US Farmers Because It Needs To

Chart of China's monthly agriculatural imports from the United States, 2017 v 2020

DESPITE HEFTY PURCHASES that could lead to a record year for US food, produce and seafood exporters, China is still behind the pace necessary to meet its ambitious agricultural commitments under the Phase One US-China trade agreement signed in January. 

As of October, China had bought $23 billion of US agricultural products this year, according to a status report on the agreement released jointly by the Office of the US Trade Representative (USTR) and the US Department of Agriculture (USDA). 

As part of the trade deal, China promised to increase its purchases of US agricultural products by $32 billion over two years from a 2017 baseline of $24 billion. That implies an annual run-rate of $40 billion.

The $23 billion figure includes purchase contracts that have not yet been completed. Actual imports in the first nine months were worth $12.9 billion. They would have needed to have been around $25 billion-27 billion at that point to be on track (although as this Bystander has noted before, Beijing has the full two years to make good on its commitment, so there is time to catch up.)

Intriguingly, the US report puts a favourable spin of China’s performance, by calculating China is at the more creditable level of 71% of target for 2020, a number it has arrived at by taking into account that the agreement did not come into force until mid-February. For the Trump administration, that approach also puts a gloss of success on a deal that has been a political headliner for the president.

The US report also notes, probably more importantly, that Beijing has implemented 50 of the 57 commitments with deadlines that it made to reduce and eliminate structural, non-tariff barriers to US agriculture in China’s market. 

A lot of the market-opening measures are the quotidian work of trade negotiators down in the weeds of the six-digit level of trade classifications, such as lifting restrictions on US almond meal pellets and cubes and expanding the list of ports through which processed meat may enter China. Some of it is, frankly, cosmetic, such as the ending of the four-year ban on poultry imports because of avian ‘flu concerns that was wrapped into the agreement but would probably have happened regardless. 

Nonetheless, the latter has given US poultry farmers $436 million in sales in the first eight months of this year, and the cumulative impact of the changes to import rules and regulations will most likely have longer-lasting benefits for US farmers than the headline-grabbing target of two years of additional exports.

Sales of US corn, sorghum, soybeans, beef and pork have been strong, pointing to record years for several of those categories. That is in part because of the market opening measures of the agreement, and in part for reasons of domestic Chinese demand. Swine ‘flu decimated domestic herds, creating a massive shortage of pork. Food crops, especially cereals, have been hit by a bad year for flooding, drought and insect infestation. This year China needs larger than usual imports of corn and soy for animal feed, as well as more beef to satisfy the appetite of a growing middle-class that can afford and wants to eat more meat.

China’s diminishing ability to feed itself has been a long-standing concern. Urbanisation and desertification have reduced its arable hectarage to close to levels at which the country cannot grow all the food it needs to sustain itself. For many years, China has been securing foreign feedstocks, produce and farmland

President Xi Jinping recently warned that China must maintain what he called a sense of crisis about food security, which may be overegging the pudding. It is a concern, not a crisis. The country has made steady gains in raising yields from shrinking hectarage and maintains a high degree of food self-sufficiency.

However, the number of mouths to be fed is not getting smaller. Nor are expectations of richer and more varied diets diminishing, requiring ever more animal feed for Chinese farmers to produce the meat and dairy products to satisfy growing demand in the affluent cities. 

Higher agricultural productivity as well as crop yields will be critical. Last week’s Plenum communique notably highlighted developing agribusiness and reforming the rural economy as objectives of the next five-year plan and the longer-term goals to 2035. For now, foreign imports will be need in some volume. US farmers can be relieved that creating a US-free food supply chain is not yet at least the national priority that it is with technology.

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China’s Soybean Importers Threaten More Defaults

CHINA’S SOYBEAN IMPORTERS are hardening their line on defaulting on contracted shipments in an attempt to force down prices in face of burgeoning stockpiles and slowing demand. China is the world’s biggest buyer of soybeans, accounting for three-ffiths of global imports. The main use for the beans is to be crushed into meal to make poultry feed. Demand for feed has fallen by an estimated 15% following last year’s outbreaks of bird ‘flu.

Since late February Chinese importers have cancelled 1 million metric tons of orders from the U.S. and South America, particularly from Brazil, though to put that in context, China imports 70 million metric tons a year. In the Chicago commodities futures markets, soybean prices have risen by more than 14% this year.

Trading firms mostly clustered in Shandong province have refused to make payments for about 20 shipments, Shao Guorui, general manager of Shandong Sunrise Group, reportedly says. Chinese buyers face losses of as much as $7 million dollars on each shipment, he adds. The crushing companies they sell onto are suffering, too, with around half the industry’s capacity idle because of over-expansion. 

Sunrise accounts for one-eighth of China’s soybean imports. It is part of Shandong Chenxi Group Co., run by Shao’s multi-millionaire brother Zhongyi.

The issue could flare up into a trade dispute with Japan.  Shandong buyers have 80 to 100 cargoes booked for delivery from the Japanese trading giant, Marubeni, through July. Marubeni accounts for a quarter of China’s soybean imports. “Marubeni is deluded in thinking that payments will come once the cargoes have sailed,” an unidentified industry executive based in Shandong was quoted as saying.

 

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