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As Trade Talks Hang By A Thread, A Soybean Problem Emerges

This is pretty simple, really.

Late last month, we “gently” suggested the White House was making things up when it comes to the contention that somehow, China will purchase $40 billion to $50 billion in US farm goods annually as part of a trade deal with Donald Trump.

That figure – which has been bandied about by the US president on numerous occasions – isn’t realistic for a number of reasons, many of which we detailed last week.

Even a fleeting glance at a chart suggests Trump’s numbers likely aren’t feasible.

In addition to the rather challenging math around getting farm purchases from the US anywhere close to the levels Trump wants on a sustainable basis (i.e., beyond a year or two), China is constricted by the realities of Beijing’s retaliatory tariffs.

Beijing has, you’re reminded, extended some waivers in order for domestic buyers to purchase US agricultural products, but as Bloomberg noted in October, “waivers are seen as being impractical for volumes as large as $50 billion a year”.

Well, as it turns out, Chinese soybean buyers have now exhausted their capacity under those waivers.

According to unnamed sources who spoke to Bloomberg this week, the buyers “have nearly reached their quota of about 10 million metric tons [and] Beijing is also unlikely to issue new waivers for US supplies before progress is made in trade negotiations with Washington”.

Absent additional waivers, Chinese buyers won’t purchase more soybeans from the US. That’s a problem for a number of obvious reasons. Bloomberg also says it’s at least possible that China has between two thirds and three quarters of all the soybean the country needs for H1 2020.

This is pretty simple, really. If Trump wants China to keep buying, he’ll need to roll back some tariffs so that China can lift retaliatory measures rather than keep issuing waivers.

Instead of buying from the US, China has increased purchases from Brazil, something Trump appeared to take issue with on Monday when he lambasted the country (along with Argentina) for “presiding over a massive devaluation of their currencies which is not good for our farmers”.

“Comparing 2012-2017 average to the 2018 level, total agricultural imports into China increased by $20.1 billion while imports from the US (which include soybeans) decreased by $9 billion”, Credit Suisse wrote, in a note last week, adding that “Brazil, as the largest single-country agricultural products exporters to China, received the lion’s share of the re-directed demand”.

(Credit Suisse)

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