CHICAGO (Reuters) - U.S. farmers and traders were reluctant to celebrate news of an interim U.S.-China trade deal on Friday, saying it remained unclear how China would manage to buy another $32 billion of additional farm products over two years as promised.
U.S. farmers, who generally back President Donald Trump, have suffered from reduced U.S. exports and lower commodity prices because of a 17-month-old trade war between the world’s two largest economies.
U.S. Trade Representative Robert Lighthizer said on Friday Beijing agreed as part of a pact to be signed in January to increase annual agricultural purchases from a baseline $24 billion in 2017 to at least $40 billion starting next year.
But it was unclear how that target would be achieved.
Sharply increasing protein purchases would be essential, particularly as a deadly pig disease wipes out much of China’s hog herd and increases demand for meat imports while decreasing the need for soybeans fed to pigs, traders and analysts said.
China would also need to buy more grains and biofuels like ethanol, they said.
“It all depends on what’s included in the mix,” said Dan Basse, president of AgResource Co in Chicago. “We believe that meats are at the top of their grocery list.”
Lighthizer said there would be specific targets for Chinese purchases of specific products, but the details would not be made public to avoid distorting markets.
Chinese officials gave no firm commitment on the amount of imports to the United States but said China may buy more wheat, rice and corn - goods it has not bought a lot of in the past.
Beijing also did not give details on how it would handle its retaliatory tariffs on U.S. farm goods, including duties of 33% on soybeans, traditionally the most valuable U.S. farm export to China, and up to 72% on pork. Trump said the United States would leave some tariffs in place as negotiations continue.
Chinese imports of U.S. agricultural goods and related products reached a record $28.6 billion in 2012 when commodities prices were near record highs, according to U.S. Census Bureau data. Imports fell to a decade low of $13.2 billion last year as retaliatory tariffs bit.
Dennis Smith, commodity broker for Archer Financial Services in Chicago, said pork would feature prominently in any buying because an outbreak of African swine fever has decimated China’s herd and pushed Chinese pork prices to record highs.
But Bill Luckey, a farmer who raises about 10,000 pigs a year in Columbus, Nebraska, was cautious about the prospects, citing competition from pork suppliers in Europe and South America.
“What they say and what they do can be two different things,” he said. “We have to see some follow through on it to make sure there are purchases for the hog sector.”
Chinese soybean purchases were likely to jump in the near term if the Chinese government grants private importers waivers from the tariffs, but could stall in early 2020 as cheaper, newly harvested beans from South America become available, traders and analysts said.
“China’s already committed to buying Brazilian and Argentine soybeans through the first half of 2020,” said Terry Reilly, senior commodities analyst with Futures International. “The private buyers in China will buy the cheapest origin, and often Brazil is the cheapest origin.”
Beijing could also import other meats to meet its protein needs. China lifted a nearly five-year ban on imports of U.S. poultry meat last month.
Bernie Adcock, chief supply chain officer for poultry for Tyson Foods (TSN.N), the biggest U.S. meat producer, said he was eager to see details of the agreement.
“Any way you want to look at it, I think poultry will be part of that growth number that goes to China. It’ll be significant.”
Additional reporting by Tom Polansek in Chicago; editing by Caroline Stauffer and Sonya Hepinstall
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U.S. agriculture wary of Trump's China sales pledge, more meat a must - Reuters
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