American farmers anticipating all the benefits of President Donald Trump’s trade deal with China are going to have to wait a while.
There’s been skepticism about China’s ability to buy as much as $50 billion in U.S. farm goods ever since the pact was signed in mid-January. And while the head of Archer-Daniels-Midland Co., one of the world’s top agricultural commodity traders, said the Asian nation will make good on its promises, most of its purchases may come only in the second half of 2020.
What’s more, Chinese officials are now said to be hoping the U.S. will agree to some flexibility on their pledges as the spread of deadly coronavirus threatens to slow domestic growth.
“I think the problem is serious and China will most likely avoid any big rush of commodity buying because of the trade deal for now,” said Michael McDougall, a managing director at Paragon Global Markets in New York. “They have a good excuse at least.”
That could delay any boost for farmers, a core voting bloc for Trump as he prepares to seek re-election later this year. U.S. growers have been roiled by the trade war between Washington and Beijing, losing market share to rivals in nations such as Brazil after China imposed tariffs on American agricultural goods.
The so-called phase-one deal aimed at resolving the spat includes provisions for more Chinese imports, the world’s biggest consumer of commodities has vowed to follow a market-oriented approach. That means purchases are likely to be made at the time of the U.S. harvest, when prices are usually lower than in rival producers.
“I do believe that China intends to comply with the phase-one conditions of the deal,” Juan Luciano, the chief executive officer of ADM, said Thursday. “The way we have estimated it for ourselves is back-loaded, so the exports to China are coming in the second half of the year.”
It’s no surprise China hasn’t started buying American products as the trade deal enters into force only a month after it was signed. The market is now focusing attention on a part of the agreement that says the nations will consult “in the event that a natural disaster or other unforeseeable event” delays either party from complying with the deal.
It’s unclear whether China has formally requested such consultation yet, but the people familiar with the matter said the plan is to ask for it at some point.
Some traders have also expressed concerns that large agricultural purchases aren’t feasible if they are market-oriented. But if they aren’t, and the Chinese government orders its state-owned enterprises to buy U.S. products at higher prices than elsewhere, that could distort global crop markets.
Additionally, the country hasn’t dropped tariffs on U.S. products, creating uncertainty over its imports. While the Chinese government hasn’t made any official announcement on its plans, people familiar with the matter say the Asian nation will administer a system of waivers from retaliatory tariffs or cut duties altogether for a few products.
“I believe that if these commitments are fulfilled, it will be tremendously helpful,” Buddy Allen, president of the American Cotton Shippers Association, said in an interview at the Commodity Markets Council event in Miami last week. “But until the actual purchases occur, there will likely not be enough confidence in the marketplace to see significant improvement in value.”
U.S. officials aren’t concerned that the Asian nation has been picking up soybeans from Brazil or wheat from Australia, Canada and France, people familiar with the matter said, asking not to be identified. They also aren’t worried about tariffs, and argue that the onus is on China to make good on its pledges, according to the people.
Meat markets may be the biggest winner, with many non-tariff barriers set to come down and China facing a large protein deficit due to the African Swine fever disease.
It’s currently cheaper to buy soybeans from U.S. rival Brazil, which is gathering a record crop. And China now needs fewer beans after a deadly pig disease decimated its herd — the world’s biggest — reducing demand for the crop that accounts for the majority of its American agricultural purchases.
“The tariffs are still in place, so is the U.S. expecting China will stock at prices that are more expensive than Brazil?” McDougall said.
CHS Inc., the largest U.S. farm cooperative, “remains hopeful that execution against those targets can be done in the most market-based approach possible to provide appropriate signals to farmers, the market and ag supply chain,” said John Griffith, senior vice president of global grain marketing and renewable fuels.