Hopes for Spike in U.S. Farm Exports to China Dim Ahead of Trade Deal Signing

(Reuters) – Days before a U.S.-China trade deal is due to be signed, large Chinese purchases of Brazilian soybeans and a pair of unexpected policy moves by Beijing have dimmed U.S. hopes that China would double its imports of American farm products this year.

U.S. President Donald Trump has touted the prospect of China buying $40 billion in U.S. farm products in 2020 as a pillar of the “Phase 1” agreement aimed at defusing the bitter trade war that erupted between the world’s two largest economies in 2018.

The conflict, marked by tit-for-tat tariffs, has disrupted the flow of billions of dollars in goods and threatened to slow global growth, rattling financial markets. It has also sent a chill through the U.S. farm community, a key political constituency for Trump as he seeks re-election in November.

China announced on Thursday that Chinese Vice Premier Liu He, who has led Beijing’s delegation in the trade talks with the United States, would sign the Phase 1 deal in Washington next week.

But Chinese forward purchases of Brazilian soybeans, including about a dozen bulk vessels this week, or about 800,000 tonnes, are raising doubts Chinese buyers will have an appetite for vast supplies of U.S. soybeans once the deal is done.

Margins in China for crushing raw soybeans into livestock feed and cooking oil have improved for mid-2020, the height of Brazil’s soy export season, according to two China-based traders.

China’s import needs have already been covered through the first quarter of the year, the traders said on condition of anonymity.

“The key factor for crushers is whether the beans are cheap, even with a trade deal. If the beans from South America are cheap, buyers will go for South America,” one of the traders said.

No details about the targeted $40 billion shopping list have been published, and China has not confirmed any purchase commitment. The U.S. grain and livestock market rally that followed the Dec. 13 announcement of a trade deal has faded.

Adding to U.S. concerns about the deal, sources in China told Reuters this week that Beijing has suspended its plan to implement a nationwide gasoline blend containing 10% ethanol this year. The plan had spurred hopes of a jump in U.S. exports of the biofuel to China, as well as shipments of U.S. corn to produce it domestically.

The news that China’s ethanol demand would not be rising broke a day after Beijing said it would not raise a low-tariff grain import quota to accommodate greater U.S. exports.

Gao Feng, spokesman at China’s commerce ministry, said on Thursday that China will continue to improve the administration of tariff quotas for wheat, corn and soybeans in accordance with World Trade Organization commitments, and will make full use of quotas based on market conditions.

China could still expand agricultural imports from the United States, he said.

Even so, market observers question whether the United States’ $40 billion goal can be reached without large volumes of a wide array of goods.

“Such a lofty target makes (the market) very skeptical about the whole thing,” said Ted Seifried, chief strategist with Chicago-based brokerage Zaner Ag Hedge. “If China’s going to hit these numbers or get anywhere close, ethanol will have to be part of the mix.”