China’s Agricultural Imports under the Phase One Deal: Is Success Possible?

Xi He, Dermot J. Hayes, Wendong Zhang
September 2020  [20-PB 29] (Revised)

This version updates the May 2020 version of CARD policy brief 20-PB 29 using monthly data until June 2020, weekly data until August 13, 2020, and daily export sales notices until August 31, 2020.

We examine China’s committed agricultural purchases under the phase one trade deal and whether it can fulfill those commitments. To understand the competitiveness of US agricultural exports to China, we review China’s agricultural imports from the United States and other countries up to the second quarter of 2020, review tariffs charged on US products, and compare the FOB and CIF prices of major agricultural commodities from the United States and its major competitors. We use prior seasonal patterns and advanced sales of key commodities to predict China’s agricultural imports from the United States for the rest of 2020 and its remaining trade deal obligations. We focus on corn, soybeans, cotton, sorghum, pork, beef, poultry, and ethanol. We pay special attention to China’s surging corn imports as of August 31, 2020, and discuss the possibility of it exceeding the tariff rate quota of 7.2 million metric tons and granting additional import quota to meet corn demand for the rest of the 2020 calendar year.

US export data show China imported $7.27 billion worth of agricultural and related products from the United States in the first half of 2020, which is around 19.9% of the promised amount for 2020. US weekly export data for both the current and next marketing year indicate that China accelerates its agricultural purchases from the United States in June and that it has significantly accelerated purchases of corn and soybeans for the next marketing year. Specifically, as of August 13, 2020, China has imported a record 1.635 million metric tons of US corn for the 2019/20 marketing year and has ordered 5.72 million metric tons of US corn for delivery in the 2020/21 marketing year. In addition, USDA’s daily export sales report shows new corn sales to China of 195,000, 405,000, 408,000, 747,000, and 596,000 metric tons on August 18, 21, 25, 27, and 31, respectively, resulting in a minimum of 8.143 million metric tons in advanced sales for marketing year 2020/21. The fact that China has imported 3.65 million metric tons of corn in the first six months of 2020 and ordered massive amounts of advanced corn from the United States provokes an important policy question as to whether China will implement its tariff rate quota of 7.2 million metric tons in the 2020 calendar year. Given that China National Grain and Oils Information Center reports that China has almost used up its tariff rate quota of 7.2 million metric tons for this year, and is considering granting an additional import quota of 5 million metric tons, it’s very likely that China will release more quota to meet its surging corn demand.

US weekly export data show that China has imported 13.95 million metric tons of US soybeans and has pre-booked 11.92 million metric tons of soybeans for delivery for the 2020/21 marketing year. Combining USDA’s daily export sales report for soybeans until August 31, China has ordered a minimum of 13.2 million metric tons of advanced soybean sales for marketing year 2020/21. China’s cotton and sorghum imports from the United States in the 2019/20 marketing year are quite strong and have reached or exceeded 2017/18 levels. For meat products, China imported a record 478,000 metric tons of US pork and 7,844 metric tons of US beef in the first 33 weeks of 2020—much higher than levels in the full 2017 marketing year. The upward trend we find seems likely to continue due to China’s strong demand for meat.

Given China’s rising domestic food prices and above-average rainfall and rising floodwaters, it has an enormous import demand for agricultural imports. In the first half of 2020, China’s total agricultural imports reached $80.7 billion, a 33% increase from the $60.7 billion in the first half of 2017. However, China sourced 90% of its agricultural imports from non-US sources in the first half of 2020, which, in part, reflects a continued diversification away from US agricultural imports before and during the trade war. Specifically, in the first six months of 2020, China imported 93% of its corn from Ukraine and 72% of its soybeans from Brazil. However, this indicates there is still a lot of room for US corn and soybean exports to China in the following months. While the United States accounted for 97% of China’s sorghum imports in June 2020, US meat products face strong competition from the EU, Brazil, Australia, and Argentina. In the first six months of 2020, the EU accounted for 57% of China’s pork imports, and Brazil, Australia, and Argentina accounted for 72.7% of China’s beef imports.

Analysis of the monthly FOB and CIF prices of China’s agricultural imports from the United States and its major competitors shows that the FOB prices of US corn, soybeans, and pork are comparable to that of Ukraine corn, Brazil soybeans, and EU pork. However, the CIF prices of US corn and soybeans are higher than the CIF prices of Ukraine corn and Brazil soybeans due to higher transportation costs and retaliatory tariffs that China imposed on the United States. Due to the tariff exemptions since March 2020, the gap between US corn and soybeans and Ukraine corn and Brazil soybeans have been dwindling, creating more room for China to import US corn and soybeans in the following months. In addition, since the beginning of 2020, US pork CIF prices have been lower than those of EU pork, indicating that US pork is gaining competitiveness over EU pork. However, the FOB price of US beef is much higher than that of Brazil beef, in part because US beef is grain fed.

To illustrate China’s agricultural purchase progress per the phase one trade deal obligations, we also present the percentage of agricultural products purchased until June 30, 2020, and the imports needed to meet the target from July 1, 2020, to February 14, 2021. We calculate 2020 and 2021 targets by assuming that China’s US import mix remains the same as in 2017 and scaling up the trade value and quantity to trade deal targets. Overall, China’s purchases of pork, beef, poultry, sorghum, and cotton are making good progress, but purchases of soybeans and corn are falling behind the target. Considering that China has been purchasing record-high amounts of corn and soybeans for the next marketing year, it’s very likely that China will increase purchases of corn and soybeans in the following months.

We also use linear extrapolation that accounts for seasonality and trend to predict China’s total US and non-US agricultural imports based on 2017 seasonal patterns and China’s most recent US agricultural purchases, which includes advanced corn and soybeans sales until August 31, 2020. Specifically, we assume that the advanced corn and soybean sales will be delivered in the first year of the trade deal. We find that China is on track to import $21.63 billion in agricultural products from the United States in the first year of the trade deal (February 15, 2020, to February 14, 2021). This is behind the target of $36.5 billion, but recent market signals indicate that the pace of China’s purchases is picking up. In addition, China’s predicted corn imports from all sources will be 12.98 million metric tons, exceeding the current tariff rate quota of 7.2 million metric tons and adding to evidence that China might expand its import quota of corn for the 2020 calendar year due to massive feed demand.

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