WASHINGTON — President Donald Trump on Feb. 24 announced he would delay an increase in tariffs (to 25% from 10%) on $200 billion worth of Chinese imports that had been scheduled to go into effect on March 1 because of “substantial progress” made by U.S. and Chinese negotiators in trade talks that ran Feb. 21-24 in Washington. The president tweeted, “Assuming both sides make additional progress, we will be planning a summit for President Xi and myself, at Mar-a-Lago, to conclude an agreement.”
Details of progress made on the principal issues in dispute — U.S. complaints over forced technology transfer, intellectual property protection, industrial subsidies, access for U.S. farm products among others —- though, were not yet known.
Robert E. Lighthizer, the U.S. trade representative, in testimony before the House Committee on Ways and Means on Feb. 27 asserted the U.S. goal in the talks was structural reform of China’s trading regime, and he confirmed considerable progress has been made but much more work was yet to be done before there is an agreement.
President Trump met with the Chinese trade negotiators in the White House on Feb. 22. Secretary of Agriculture Sonny Perdue attended that session and tweeted, “In Oval Office meeting today, the Chinese committed to buy an additional 10 million tonnes of U.S. soybeans. Hats off to POTUS for bringing China to the table. Strategy is working. Also indications of more good news to come.”
Mr. Perdue subsequently was quoted as saying he expected the soybean purchases to be made in the “near term,” assumed to mean during the course of the current crop year ending Aug. 31.
According to the U.S. Department of Agriculture, U.S. exports and undelivered sales of soybeans for China for 2018-19 by Feb. 14 totaled 7,406,000 tonnes. Trade sources indicated the export sales total was actually higher, at about 10 million tonnes since the summit between President Trump and President Xi Jinping in December.
The 10 million tonnes Mr. Perdue said the Chinese negotiators promised to import would be in addition to those earlier purchases. Should China purchase all the promised soybeans, its imports from the United States may total around 20 million tonnes in the current crop year. By way of comparison, U.S. exports of soybeans to China in calendar year 2017, the last full year without an impact from the trade war that erupted in mid-2018, totaled a record 31.7 million tonnes.
The soybean market’s reaction to what ordinarily would be viewed as bullish news was tepid. In fact, soybean futures declined in the days following Mr. Perdue’s tweet.
Veteran soybean market analysts pointed out the announcement of new soybean purchases played out against a backdrop of large, even burdensome supplies of soybeans in the United States and worldwide. The U.S.D.A.’s current forecast for the U.S. carryover of soybeans on Sept. 1, 2019, was a record 24.76 million tonnes (910 million bus), more than double the 11.92 million tonnes (438 million bus) in 2018, the current record.
In order to keep its promise to buy more U.S. soybeans, China will buy less soybeans from Brazil, its principal supplier in recent years. Brazil currently is harvesting its third-largest-ever soybean crop, and new crop soybeans from that country soon will be shipped abroad. Brazilian soybean prices will be below those of the United States, but as the Chinese decision to purchase U.S. soybeans is political and not economic, low-priced Brazilian new crop soybeans will have to find other outlets, perhaps supplanting U.S. exports. For that reason, U.S. sales of an additional 10 million tonnes of soybeans to China likely will not result in a 10-million-tonne reduction in the forecast U.S. 2019 soybean carryover, and world stocks of soybeans may not be affected much at all.
Another factor tempering market enthusiasm was a struggling Chinese soybean crushing industry. African swine flu has ravaged Chinese swine herds in several areas, decreasing demand for soybean meal and other protein feeds. The U.S.D.A. forecast Chinese soybean imports in 2018-19 at 88 million tonnes, down 6.1 million tonnes from 2017-18, because of the swine flu impact and the Chinese swine industry’s lowering of the protein content in animal feed in response to the earlier decreased availability of U.S. soybeans.
Indications were Chinese purchases of U.S. soybeans will be added to that country’s reserve stores as they were not immediately required for crushing.
Mr. Perdue’s suggestion that there may be “more good news to come’’ may have been a reference to a widely shared rumor that China, in the event there is an agreement, said it would purchase an additional $1.2 trillion in U.S. goods and services during the next five years in an effort to address the trade imbalance between the United States and China. That total would include $30 billion in additional purchases of U.S. commodities in each of the five years after an agreement is concluded.
Some observers suggested the $30 billion in additional Chinese purchases of U.S. commodities each year for five years would be composed entirely of farm products; others were skeptical that that was possible, and they seemed to think the $30 billion figure probably would include a range of commodities, including non-farm products.
The United States in 2017 exported $19.7 billion in agricultural commodities to China, more than $16 billion of which was soybeans. From that base, an additional $30 billion in farm exports to China would raise the value of U.S. agricultural exports to that country to nearly $50 billion a year for five years.
Whether or not the entire $30 billion a year in additional commodity purchases would comprise farm products, it was expected China would be importing significant additional amounts of a range of U.S. farm products. But again, there was nothing in black and white to substantiate the promise, although Mr. Lighthizer suggested in his Feb. 27 testimony that a list of products and export expectations were under discussion with China.
Enthusiasm in grain and oilseeds futures markets was expected to be restrained until more is known about what was agreed in Washington.