China is proposing that it could buy an additional $30 billion a year of U.S. agricultural products including soybeans, corn and wheat as part of a possible trade deal being negotiated by the two countries, according to people with knowledge of the plan.
The offer to buy the extra farm produce would be part of the memoranda of understanding under discussion by U.S. and Chinese negotiators in Washington, according to the people, who asked not to be identified because the plans are confidential. The purchases would be on top of pre-trade war levels and continue for the period covered by the memoranda, they said.
U.S. Agriculture Secretary Sonny Perdue said it was “premature” to comment on what or how much China might buy as part of a trade deal. “I don’t want to raise expectations,” he told reporters attending the department’s annual outlook conference in Washington on Thursday. “If we reach an agreement on structural reforms we can recover markets very, very quickly.”
As part of the talks, officials are also planning to discuss removing anti-dumping and anti-subsidy tariffs on distillers dried grains, a by-product of corn ethanol production that’s used in animal feed, people said earlier. Soybeans, corn and wheat futures prices rose in Chicago in response to the news.
“China will say what needs to be said to get a deal, but the key component will be in the verification and enforcement,” Arlan Suderman, chief commodities economist for INTL FCStone, said in a note. “I remain skeptical that such a deal will ‘fix’ the soybean balance sheet, without specific very large purchase quotas that I do not expect. However, it would not require very large purchase of corn, ethanol and DDGS to significantly improve the corn balance sheet.”
China has repeatedly offered to increase purchases of agricultural and energy products to shrink the U.S. trade deficit. Since a tariff truce agreed in December, it has resumed imports of some farm goods including soybeans and President Donald Trump this week said “a lot of” corn would be next on Beijing’s shopping list.
The MoUs under discussion are also said to cover areas including non-tariff barriers, services, technology transfer and intellectual property. The enforcement mechanism remains unclear, but would likely be a threat that tariffs would be reimposed if conditions aren’t met, a person said earlier.
Nobody responded to a fax sent to China’s Commerce Ministry late Thursday. Gao Feng, a spokesman for the ministry, said at a briefing earlier that he had no details regarding any MoU being discussed with the U.S. He also said that he couldn’t offer any information on the results of the trade talks until the current round ends.
Market Share
In 2017, China imported a total $24.2 billion in American agricultural products, with 60 percent of that in oilseeds and the remaining in products such as meat, cotton, cereals and seafood. Combined purchases slumped by a third to about $16 billion last year as China’s retaliatory tariffs on American farm goods reduced imports.
“The bounce in Brazil and Argentina prices this week leaves the U.S. in good position to attract demand from China if there are no tariffs,” Terry Roggensack, one of the founding principals of commodity research company Hightower Report, wrote in a note Thursday.
If there is no deal between the U.S. and China, Brazil and Argentina would be expected to capture the market to serve Chinese demand, and the U.S. will sell more to Europe, the Middle East and other Asian nations, USDA Chief Economist Robert Johansson said on the sidelines of the conference in Washington. The U.S. has built up a stockpile of soybeans, he said, and it will “take a while to bring those stocks down.”
