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Ag Sales to China Tick Upward          05/27 17:45

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

   Agricultural sales are rising and trade officials reiterate that China is 
making progress on the phase-one agreement, but sales lag far behind the 
prospect of reaching figures promised in the trade deal signed in January. 

Chris Clayton
DTN Ag Policy Editor

   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.

   Chris Clayton can be reached at chris.clayton@dtn.com

   Follow him on Twitter @ChrisClaytonDTN




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