China’s latest promise to reduce tariffs on U.S. soybeans and pork is being lauded as an olive branch ahead of new trade talks early next month, but China also needs more of the commodities to feed its people, according to industry and government analysts.
Last week China, through state-run media outlets, announced it would “exclude some agricultural products such as soybeans and pork from the additional tariffs.”
Implicit in China's announcement is the importance that the upcoming trade summit go well and President Donald Trump refrain from announcing new tariffs on Chinese goods, but nothing has been made official. The only semiofficial word has come from China’s state-run media, and those reports have been vague on details.
“There hasn’t really been any announcement from the Chinese,” said Joe Schuele, a spokesman for the U.S. Meat Export Federation.
China may be letting the U.S. know it’s ready and willing to buy more pork, soybeans and perhaps other commodities from American farmers, but even U.S. government officials say they are still in the dark as to just how much China is willing to buy and for how long the purchases will continue.
At the same time, Chinese importers began quietly buying up U.S. soybeans last week.
Since Friday USDA announced new export sales of 720,000 metric tons of U.S. soybeans for delivery to China in the 2019-20 marketing year. There was no official announcement out of Beijing, but John Baize, a consultant to the U.S. Soybean Export Council, told Agri-Pulse China has permitted five importers there to purchase 3-5 million metric tons of soybeans from the U.S. while only paying a 3% tariff. That allows those importers to avoid the 30% punitive tariffs levied by China as part of the ongoing U.S. trade war.
Purchases — often stressed by President Donald Trump as an important part of trade negotiations — mean more than a goodwill gesture, says Baize.
“It gives those (Chinese) companies the opportunity to buy soybeans cheaper and it’s a positive signal to Trump prior to the negotiations,” Baize said.
China has been relying heavier than ever on Brazil as a soybean supplier over the past year and a half, but the South American farming giant is limited in what it can provide, especially at certain times of the year.
These latest purchases, he said, are providing Chinese importers a major break.
“The premium for Brazilian soybeans over the U.S. was about $30 per ton,” he said. “So by doing this, they drove the Brazilian price down some. And it’s damn dry in Brazil and they’re probably going to be late in planting and delayed in harvesting. They recognize they better start getting some U.S. soybeans on the books and get them shipped in the event that they need more later.”
USDA’s Foreign Agricultural Service predicted about three months ago that Brazilian farmers would be expanding soybean acreage this year and producing another record-breaking crop, but that was before the dryness settled in.
Planting season has officially started in Mato Grosso — a key farming state in Brazil — but local officials are indeed concerned about the weather.
Daniel Pasculli, a manager at the state’s chapter of the Brazilian Association of Soybean Producers (APROSOJA), is predicting farmers will not be rushing into the fields.
"The weather is still dry in most regions of the state and it is necessary to wait for the regularization of the rains," he said in a Monday statement on the group’s website.
Brazil doesn’t normally begin harvesting until December. Any delay could be very costly, especially because China is trying to rebuild its swine industry at the same time it combats African swine fever.
When it comes to pork, the only certain thing is that China needs it and that need will intensify over the coming months.
An ample supply of affordable pork has become a sign of stability and well-being, but disease is ravaging Chinese producers at a time when Beijing is seeking to project strength during the U.S. trade war and daily uprisings in Hong Kong.
Estimates on how much of China’s hog population has had to be wiped out in the effort to staunch the spread of African swine fever across the country vary widely between 30 and 50%. That in and of itself has caused a spike in domestic pork prices by as much as 50%, according to industry analysts.
Late last month, Chinese Commerce Ministry spokesman Gao Feng reassured reporters that supplies of pork would be sufficient for celebrations this month of the country’s Mid Autumn Festival.
More recently, Chinese Premier Li Keqiang announced the creation of federal measures to push down pork prices and remove restrictions on farmers in an effort to spur production.
“The most urgent task is to restore the production of pigs, ensure the supply of pork, and stabilize the market price,” Li said in a posting on the Chinese Finance Ministry’s website.
Li went on to emphasize the importance that pork supplies be plentiful for the country’s New Year's Day and Spring Festivals next year.
Meanwhile, the Chinese federal government is leaning on local municipalities and banks to support their local hog farmers in an effort to push up pork production.
Local governments are being “urged to offer preferential policies in farming land, funding and financing and grassroots epidemic-prevention teams,” according to a statement that also stresses that pork production subsidies have been extended.
China has massive stores of frozen pork and one industry analyst said the federal government is expected to have to begin depleting it ahead of the upcoming holiday celebrations. That means prices will likely decline, at least in the short run, but it also means that the country is likely to ramp up imports.
U.S. companies are already exporting pork to China, despite the ongoing trade war, but business could be a lot more profitable if China followed through and cut tariffs, which now total 72%.
USDA’s latest weekly export sales report shows net sales of 10,900 metric tons of pork to China during the week of Aug. 30 through Sept. 5. Physical exports to China totaled 5,100 metric tons.
But sales could be much higher, given the ASF situation, if not for China’s punitive tariffs, said Nick Giordano, a vice president for the National Pork Producers Council.
“China’s obviously going to import more pork …” he told reporters last week. “The question is who’s going to benefit. Without the trade frictions, unequivocally … the United States would be the primary beneficiary. But given the uncertainty surrounding the U.S.-China trade dispute, we just don’t know. Nobody knows.”
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