Ag Sales to China Tick Upward

China is Buying More Farm Products, But Not Enough to Reach Phase-One Goals

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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A Chinese flag blows in the wind on a ship loaded with cargo at the port of Long Beach, California, in 2018. Agricultural exports to China for some key commodities are rising, but the sales are way behind what is needed to reach the goals from the phase-one trade deal signed in January. (DTN file photo by Chris Clayton)

OMAHA (DTN) -- China is increasing its purchases of key U.S. agricultural commodities even as political rhetoric between the two countries ramps up, but China isn't projected right now to come close to hitting its targets for ag buys under the phase-one trade deal.

Blaming China for the coronavirus pandemic to criticizing China's new law cracking down on protests in Hong Kong, U.S. lawmakers and officials in the Trump administration are lashing out at the country, while at the same time walking a fine line on the phase-one agreement signed back in January.

Larry Kudlow told reporters Thursday in Washington he and other administration officials had spoken recently with China's vice premier, who was the lead negotiator on the trade deal. "They reported to the president that the deal is intact, and China has every intent on implementing it," Kudlow said, according to the Wall Street Journal.

Kudlow acknowledged commodity purchases "are a little far behind" because of poor economic conditions, but the president's adviser said he is still satisfied overall with China's compliance with the agreement.

USDA and the U.S. Trade Representative's Office continue issuing progress reports on the trade deal. On Thursday, the agencies noted China has approved 2,085 U.S. beef, pork, poultry, seafood, dairy and infant formula facilities for exports -- the most in history. China also now will accept blueberries and avocadoes, as well as more barley and hay products.

"China is a market of tremendous potential for U.S. agriculture and these actions will help U.S. exporters expand their sales there," said Agriculture Secretary Sonny Perdue in a statement. "We look forward to continued cooperative work with China on implementation of phase-one commitments, and immediate increases in U.S. exports of all manner of agricultural products."

The phase-one target this year for agricultural sales is supposed to hit $36.6 billion, with overall exports listed at increasing as much as $200 billion. For the first three months of the year, China had only purchased $3.35 billion, which is about 2% below 2019 totals for the first quarter of the year, according to U.S. Census Bureau data on agricultural exports. U.S. ag exports to China are down sharply since hitting $23.8 billion in 2017 as the U.S. and China have slapped hundreds of billions of dollars in tariffs on each other since.

"The sales are a little more active, but it's nothing close to what we're talking about as far as phase-one targets," said DTN Lead Analyst Todd Hultman. "I don't think it's going to be anything close to 2017 levels. It's probably not going to be a lot different than what we have seen the past two years."

Jeffrey Schott, a trade policy expert at the Peterson Institute for International Economics, told DTN the agricultural target for sales was unrealistic to begin with, but the deal needed to be sold as a major victory for the president. "They are going to continue to buy farm goods because they need the farm goods, but they also know the targets that were set were unrealistic to begin with, and given the events since the deal was struck, they are not going to be able to meet the targets this [year] and likely not going to accelerate purchases to meet the two-year targets in 2021," Schott said.

Schott added the criticism of China by U.S. politicians will continue, but most Chinese leaders also understand U.S. political saber-rattling during an election year because they studied here.

"So it's a full-court press against China on the rhetorical front but at the same time they are saying China has told us they are going to keep the terms of the deal," Schott said.

To that end, Chinese Premier Li Keqiang on Friday gave an extensive speech before China's legislature spotlighting how the country will recover from the coronavirus economically. Li mentioned trade liberalization and reiterated China's commitment to the phase-one deal. "We will work with the United States to implement the phase-one China-U.S. economic and trade agreement," Li said. "China will continue to boost economic and trade cooperation with other countries to deliver mutual benefits."

The phase-one deal went into effect Feb. 14, so sale totals don't exactly mesh with USDA reports for the marketing year for crops, or meat products, but several commodities are showing greater demand than 2019, which was still in the midst of the tariff war. Still, exports would have to soar in the coming months to come close to achieving the phase-one promise. A big stumbling block there is Brazil, which just harvested a 4.5 billion bushel soybean crop.

"It looks like China's overall soybean demand is as strong as ever, but unfortunately for us they have been able to source a lot of it out of Brazil because Brazil had another big crop this year," Hultman said.

China is buying a few more commodities, though. For corn, China has more than 1 million metric tons (mmt) (39.4 million bushels) of outstanding sales for the 2019-20 crop still waiting for actual export, but China also has outstanding sales on 819,000 metric tons (mt) (32 mb) of the 2020-21 crop listed as well, according to USDA. Over the past four years, China had bought very little U.S. corn.

China's soybean purchases are up 9% from where they were a year ago. Soybean exports and outstanding sales to China right now are reported at 14.55 mmt, (534.6 mb) compared to 13.35 mmt (490 mb) a year ago. Actual physical shipments are significantly higher than 2019, but outstanding sales for the rest of the marketing year are less than last year.

"The bottom line as I see it, as long as Brazil keeps having big crops, we're behind the eight ball in this negotiation," said Hultman. "I just don't see China being pressured to take more beans or more ag products from us than what they need on their shopping list. That's kind of where we are relegated right now."

China also has dipped a little into the wheat market. After buying no U.S. wheat at this point a year ago, China has 225,000 mt (8.86 million bushels) listed as outstanding buys for the current market year and 455,000 tons (17.9 mb) for next year, according to USDA reports. For cotton, sales to China are up 47% from the last marketing year, which runs through the end of July. China last week bought 153,000 bales of 2019-20 crop and also 79,000 bales of new crop. While sales to China are up from 2019, they still lag behind the five-year average. A large share of China's purchases includes 1.71 million bales of old crop waiting in outstanding sales.

Due to African swine fever, pork exports are an area where China has made major strides compared to last year. Actual shipments and outstanding sales since January are at 458,000 tons, up 57% from 2019's reported sales at this time, according to USDA. Hides and skins sales to China also are up about 25% since the beginning of the year.

One of the problems with the higher sales volumes for U.S. commodities is they are coming at a lower price. The phase-one deal doesn't address the size of shipments, but dollar value. And prices are down for most major agricultural products.

"So if the prices are down that means you have to sell more product to make the target, and they are not even close," Schott said.

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Chris Clayton