China boosts purchases of US farm products

By Gregory Meyer, Financial Times | avril 04, 2019
us farm products

China has ramped up its purchases of US farm products, providing a goodwill gesture in the midst of talks aimed at ending the year-long trade war — but also reflecting the country’s extensive need for the commodities.

Official data released in Washington on Thursday showed net sales of 178,000 bales of US-grown upland cotton to China in the past week, the second-highest weekly volume in two years. China also bought 1.7m tonnes of soyabeans.

The deals were reached despite tariffs Beijing has imposed as it targeted the US heartland in retaliation for the Trump administration’s levies. Chinese negotiators were in Washington this week attempting to resolve their stand-off over trade, intellectual property and the forced transfer of technology.

China “is going to be buying a lot of product. More than anybody would believe”, US President Donald Trump said after those talks began.

Some agricultural products, such as corn-based ethanol, have not been shipped to China for months. However, China has also stepped up purchases of pork, corn and the feed grain sorghum.

Beijing added a 25 per cent tariff to US cotton last July, putting the high-quality fibre at a disadvantage to supplies from Australia and Brazil. But industry sources say China will need to import more after the government ran down large state reserves. “They really can’t do without us,” said an industry executive in Memphis, the US cotton trading capital.

China’s import commitments for US upland cotton total 2.86m bales, only about 100,000 below the level of a year ago. After reaching a February low, cotton prices have risen 11 per cent to about 77.5 cents a pound in New York.

china-re-enters-us-cotton-market

“We’re seeing some inklings, maybe, of some better news to come on trade,” said Steve Verett, executive vice-president of Plains Cotton Growers, a farmers group in Texas.

If a deal is approved, China may commit to increase purchases of US agricultural products. Robert Lighthizer, the US trade representative, testified in February that “absolutely cotton is a factor” in these discussions. “It’s something that China needs and has traditionally bought. And it’s easy to buy more of,” he told a congressional committee.

China has returned to the US soyabean market since Mr Trump and Chinese President Xi Jinping agreed to head back to the bargaining table in December. In February Sonny Perdue, the US agriculture secretary, said China had committed to buying another 10m tonnes of soyabeans.

The past week’s 1.7m soyabeans purchase brought China’s total import commitment for the current crop year to 12.9m tonnes. The sum is still about a third of US exports to China before the tariffs, leading US farmers to signal they will slash acreage devoted to soyabeans this spring.

Dan Basse of AgResource, a consultancy, said that China’s soyabean imports were being directed by Chinese state-controlled Cofco and Sinograin, not international companies.

“We don’t see anybody from the private side standing up and making big purchases, because they’re concerned about tariffs that are still in place,” Mr Basse said. “To me that’s goodwill buying.”

As China increases imports of US soyabeans, it has ceased purchases of an alternative oilseed from Canada. Two companies, Richardson International and Viterra, a unit of commodities trader Glencore, have had their licences to export canola seed suspended by Beijing.

China pointed to pests in Canada’s canola seed shipments, an assertion questioned by Jim Everson, president of the Canola Council of Canada. A Richardson official earlier suggested the move was related to Canada’s detention of a senior executive from Chinese telecoms company Huawei.

“We have been exporting increased quantities of seed in the past three or four years,” Mr Everson said. “We don’t think the quality of canola has changed over that time.”

In March, China purchased 24,000 tonnes of US pork, the highest amount in almost two years. The deal came as African swine fever sharply reduced its pig herd, increasing demand for foreign meat even as it slows demand for livestock feed ingredients such as soya meal.

China also purchased 300,000 tonnes of corn and 130,000 tonnes of sorghum from the US in February and March, in spite of 25 per cent tariffs on each.

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