Chinese Ag Purchases Aren’t Just Because of Trade Agreement

The pace of Chinese purchases of U.S. agricultural commodities has picked up in recent weeks. Industry experts are speculating that the Asian nation is trying to catch up on its Phase One Trade Agreement obligations. Ben Kasch is an account executive with Bower Trading in Lafayette, Indiana. He says there may be more to it than just Phase One.

“That’s the question; is it politically driven from the Phase One or is it fundamental because they’re having production issues and maybe a food crisis on their hands too? They’ve had some weather issues that we haven’t really talked about until they started buying here. They had a dry region in the North China plain that’s a major growing region. China’s a huge country, so they grow all kinds of crops across many, many acres. They’re the second-largest wheat grower and the second-largest corn grower.”

Flooding is affecting a good chunk of China’s main crop-growing areas.

“They are a major producer, but they aren’t self-sufficient in supplying food. So, they had some weather issues, most recently flooding issues in the Yangtze River region, which is a rice and wheat area, causing some flooding there because of 10-19 inches of rain in that area, which is a pretty big deal. They also had the Army Rootworm show up a little early as well in June, which is usually a fall issue, so that’s causing some issues. I think the end-users there are worried about this year’s production.”

End-users are also worried about the availability of grains for China’s expanding livestock sector. Production problems forced China to draw down the size of its grain stocks and the country needs to build those reserves up again.

“I think they kind of got forced into it. The quality of that grain has not been as good as it’s been in there for many years, so there are some condition issues there, but at the same time there seems to be a shortage from the old crop. They have some need demand there to get that filled, whether the quality is good or bad. We saw them go ahead with large daily purchases of over 1.4 million metric tons on two different purchases, and 1.7 million on another one, a record-high that they’ve ever bought from us on corn.”

Many market experts have speculated on the possibility of China living up to its obligations under the Phase One Agreement, noting the pace of purchases is lagging. However, Kasch isn’t completely writing off the possibility.

“Anything’s possible, especially with the dollar down now. If the dollar was staying up around that par level of 100, it would be really tough but I think there are some underlying production issues there, and then with the whole COVID situation we’re going through, food security is a lot of the government’s number one concern right now for their people. I think if they wanted to, China could definitely make a push at it. We have plenty of corn to get rid of; not a bumper crop but a large crop, probably over 15 billion bushels. We have enough corn to move, so it would be great if they’d get in here and start buying.”