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China to purchase $36 billion of US agricultural products in 2020, $43 billion in 2021: governments

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China to purchase $36 billion of US agricultural products in 2020, $43 billion in 2021: governments

New Delhi — China has committed to purchase $36.3 billion worth of US agricultural products, including soybeans, in 2020 and $43.3 billion in 2021, under the Phase 1 trade deal signed Wednesday, according to a joint statement released by the two governments.

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US President Donald Trump and Chinese Vice Premier Liu He signed the trade deal that seeks to boost China's import of American goods and services and end the 18-month long dispute between the two nations.

Until 2017, before the US-China trade dispute started, China was buying $25 billion worth of US agricultural products on average every year. Despite a recent spike in US pork exports to China, soybeans are by far the most significant component in agricultural trade ties between the two nations, trade sources said.

On average, soybeans comprise over 50% of US exports to China annually, while pork, beef and poultry comprise a mere 5%, 4% and 2%, respectively, according to the US Department of Agriculture.

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China could buy approximately $41.3 billion worth of US agricultural products annually, including around $18.7 billion -- or 45 million mt -- of soybeans, Chinese agricultural consultancy JCI China said earlier.

"US soybeans will be the top choice for state-owned companies as China -- world's largest soy purchaser -- has made the promise to buy," JCI told S&P Global Platts. China could also step up the purchases of pork, sorghum, corn and distillers' grains to fulfill the $40 billion agricultural imports target, JCI said.

Commodity-specific details concerning agricultural purchases in the trade deal were not made public in order to prevent market disruptions, market sources said.

CHALLENGES

The slowing Chinese economy could prove to be challenging for trade-deal sustainability. The Chinese quarterly economic growth in the July 1-September 30 period has slowed to 6%, the lowest in three decades, which means that the country's purchasing capacity has declined, an industry source said.

African swine fever outbreak is another factor which could severely limit China's purchase of US agricultural products, particularly soybeans. The country, which is also the world's largest pork producer and consumer -- lost over 40% of its pig population since August 2018 due to African swine fever. Simultaneously, the country's demand for soybean-based animal feed dropped drastically.

However, others are confident that the impact of African swine fever has past in China in 2020.

China has recovered from the African swine fever-led soybean demand slump, JCI said. "Chinese pig farming is expected to recover in 2020 on condition that there will be no serious [African swine fever] outbreak," it added.

China's soybean demand in the 2019-20 marketing year (October-September) could reach up to 90 million mt, up 9% year on year and 6% higher than the USDA's December WASDE report, due to a recovery in pig and sow herds in recent months, according to S&P Global Platts Analytics.

China's pig-feed production has also been on a four-month rise since September, sources said. In December, the pig feed increased 2% month on month.

No large-scale culling of pigs is expected to happen in China now and pig farming is recovering with large pig farming companies expanding their pig herd, JCI said. "Government officials said 80% of the pig production will recover in 2020."

There are doubts regarding the enforceability of the Phase 1 trade deal, with core issues, such as currency devaluation, intellectual property rights and forced technology transfer yet to be resolved comprehensively by the two sides. However, some analysts are optimistic for the deal.

The deal will be successful if the two sides fulfill their promises, JCI said. "We believe it's real (enforceable) based on the current situation. "