China slows US agriculture purchases ahead of election: analysts

New Delhi — China has slowed down its buying of US agriculture products in recent weeks and remains in a wait-and-see mode ahead of the outcome of the US presidential election, but the country's grain buying is expected to continue in the long run as it looks to diversify its sources, amid uncertainty clouding the scope of the Phase One trade deal before the new administration takes the office in January.

China has accelerated purchases of US agricultural products in the last few months, as part of its plans to remain on track with its targets under the Phase One deal, with sales of soybeans, corn, wheat, sorghum, barley and pork reaching at well above year-ago levels.

The latest data from Beijing-based analytical firm Cofeed showed at least 21 soybean cargoes from the US are expected to arrive in China in November, up from just seven cargoes arrivals seen in October.

"After falling behind early in the year, [US agricultural] exports [to China] increased significantly in recent months beyond the levels needed," said Nicholas Hoyt of US-based fund Imbue Capital.

Sales slowdown

However, in the last three weeks, US agriculture product sales to China have slowed down, as indicated by the lack of daily flash sales reported by the US Department of Agriculture, which show fresh purchases of commodities.

The flash sales point to any export sales activity made in one day totaling 100,000 mt or more for a commodity, or 200,000 mt or more during a given week.

Daily flash sales of corn to China were reported last on Oct. 14, while China last booked large soybean volumes on Oct. 15, according to the USDA data.

US daily corn sales to China have slowed down since the large 1.1 million mt of sales seen in earlier September, according to USDA data.

China's commitments for US corn now have soared to 10.6 million mt for 2020-21 delivery, a record. However, only 1.9 million mt of corn has been shipped from the US ports between Sept. 1 and Oct. 22, the USDA data showed. US 2020-21 corn marketing year started in September.

US bean export sales to China totaled more than 1 million mt every week since Aug. 27, but have dipped sharply after Oct. 1, according to USDA data.

Chinese buyers are covered until the year-end and now remain on sidelines, as they wait for clarity on the US presidential elections, according to sources.

"For now, China will purchase just enough to keep the numbers moving in the right direction, but not so much as to drive up their own prices. China is waiting on the results of the US elections and stocking up on commodities when prices are low," said Dave Huston, principal market technician at US-based Huston Trading.

Slowdown in Chinese buying did not have a big impact on US grain price movements, as prices still remain elevated from the lows seen earlier in the year, mostly owing to other factors like managed funds taking long positions, weather concerns in key regions and implied impact of smaller production.

Phase One deal commitments

China in 2018 had imposed retaliatory tariffs on several agricultural products imported from the US, including soybeans and pork, which resulted in a big plunge in US agriculture exports in the following year.

The Phase One deal was agreed to by US and China to defuse trade tensions between the two countries, but more importantly, to subdue chaos that emerged in the US farming industry.

Under the Phase One deal agreement reached earlier in 2020, China committed to ramp up its agricultural purchases of US products, by buying an additional $12.5 billion of goods in 2020 above what it bought in 2017.

"To date, China has purchased over $23 billion in [US] agricultural products, approximately 71% of its target under the Phase One Agreement," according to a joint statement by the US Trade Representative and the USDA.

Election implications on the deal

However, market experts have expressed mixed views of implications of US Elections on the Phase One deal going forward.

"[There are] too many questions remain[ing] to have any confidence on whether the deal will be met or the intention would still be to honor the existing deal with a new administration arriving in January," said Hoyt of Imbue Capital.

"The US-China Phase One trade deal follows through on real issues in trade between our two countries. The issue is who [Biden or Trump] best can develop an economic plan that encourages both parties [US and China] to stick to their commitments," Huston said.

If Donald Trump gets reelected, he will be pushing for equal trading rules, aimed at China, according to analysts.

Trump's reelection would mean focusing on getting ally support to rally around US intentions to push China into accelerating their WTO agenda for meeting developed nation status, said Brian Splitt, partner at Montana-based consultancy AgMarket.Net.

If Joe Biden is elected, there could be a reset seen to previous trade issues that existed prior to Trump, according to one Illinois-based farmer.

Grain hunting to continue

Several farmers, analysts and traders Platts talked to believe that in the long run China is expected to continue meet its growing demand for agricultural products irrespective of the election results, and will also look to continue diversifying its import sources.

"China will buy what they need when they need it and get it from the lowest priced supplier regardless of who is president," according to Pete Meyer, head of oilseed and grains at S&P Global Platts Analytics.

"As long as China needs to import agricultural products to the extent it needs US farm products it will buy US goods, but China is already thinking in terms of the future of its food security and is looking for ways to maximize domestic yield and source imports from other countries," said Jacob Shapiro, founder and chief strategist at US-based geopolitical firm Perch Perspectives.

An analysis of China's corn imports data provided by Cofeed from January through September showed China only imported 1,257 mt of corn from the US until May, but meaningful volumes only started picking up in June. On the other hand, China shipped in 2.6 million mt of corn from Ukraine between January and May.