Via Financial Times

US claims that China will purchase $40bn of American agricultural goods were greeted with scepticism over the feasibility of a deal that would surpass all previous shipments by at least $10bn.

US officials said Beijing had committed to the imports as part of a preliminary trade agreement reached Friday that followed months of negotiations and escalating tariffs between the two trading partners.

If realised, the pledge could prop up rural economies suffering from a glut of grain. The agreement “provides relief after more than a year of market uncertainty,” said Jim Sutter, chief executive of the US Soybean Export Council.

There were questions about the practicality of the agreement, however. Joseph Glauber, a former chief economist at the US Department of Agriculture, said silence on China’s commitments by individual commodity could prove confusing to farmers deciding what to plant. “The details still remain very obscure,” he said.

Annual US farm exports to China had exceeded $20bn until 2018, when they dropped to $13.4bn mainly because of retaliatory duties on soyabeans and pork.

Robert Lighthizer, US trade representative, said China had agreed to increase agricultural purchases by $16bn per year above the $24bn in sales recorded in 2017, bringing the annual total to at least $40bn in 2020 and 2021. The purchases would be part of a broader commitment to import more US manufactured goods, energy commodities and services.

Ning Jizhe, vice-head of China’s state planner, the National Development and Reform Commission, confirmed the country would increase purchases of US agricultural products “that are competitive in the market,” though he said specific numbers would be released at a later date.

Column chart of Billion $ showing US eyes farm goods exports to China

Agricultural markets had a mixed reaction to the news, with soyabean futures closing up 1 per cent at $9.075 a bushel and lean hogs ending 1.2 per cent higher in Chicago, while cotton — an important export to China — fell 0.6 per cent to 66.8 cents a pound.

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Reaching $40bn in sales could prove a challenge in current market conditions. When the US exported a record $29.6bn in agricultural goods to China in 2013, the soyabean price was more than $14 a bushel. When prices are lower, volumes need to be higher to boost overall sales.

“To get to $40bn seems like a pretty big number unless we have a major change in commodity prices between now and 2021,” said Stephen Nicholson, vice-president of grains and oilseeds at Rabobank in St Louis.

Soyabeans were historically the largest US agricultural export to China, totalling about 32m tonnes in 2017. If China were to increase purchases by two-thirds as implied by the proposed agreement, volumes could rise to about 53m tonnes.

This year’s US soyabean crop was 97m tonnes, of which 61m tonnes will be used by the domestic oilseed crushing industry, the USDA forecast this week.

Extra shipments to China could crowd out export customers in Europe and the rest of the world, forcing them to turn to Brazil for supplies in a mirror image of trade flows that occurred during the tariff war, said Richard Feltes, vice-president at RJ O’Brien, a commodities broker.

Mr Glauber said China’s commitments could draw scrutiny from other food exporting countries that may question “whether US products have been guaranteed preferential access” for tariff-rate quotas that are supposed to be applied on a most-favoured nation basis under global trade rules.

China’s demand for soyabeans has declined by millions of tonnes as African swine fever wipes out more than half of its pig herd, the main consumer of soya meal. Its meat imports have correspondingly soared, notably from Australia, Brazil and Europe, as tariffs have made US exports uncompetitive.

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In November, China ended a ban on US poultry imposed in 2015 in response to an avian influenza outbreak. Its 35 per cent tariff could disappear under the new pact.

Jim Sumner, president of the USA Poultry and Egg Export Council, said Friday’s deal opened an opportunity for $2bn in annual poultry exports to China. “We hope to have a good share of that $40bn,” he said.

US pork exports to China were $1bn in 2017, according to the US Meat Export Federation. An 2018 analysis by Iowa State University published before the swine fever outbreak concluded that China could import $8.9bn more US pork once tariffs were gone.

Gary Blumenthal, president of the consultancy World Perspectives, warned that increasing exports that much risked a squeeze on US supplies. “I don’t know how you move that much pork in one year without it showing up in your bacon prices,” he said.

Additional reporting by Christian Shepherd in Beijing