China – US trade phase one trade deal with China was signed and came into effect from February 15, 2020. Under this agreement, China has agreed to purchase an additional US$12.5 billion worth of US agricultural products in 2020, and US$19.5 billion more in 2021. Following the signing, China is accepting applications for tariff exemptions for 696 products imported from the United States including soybeans.
This exemption comes amidst a coronavirus outbreak, COVID-19. With China being in a state of partial or full lockdown, authorities in China were imposing major restrictions on travel and transportation to curb the spread of the virus which has killed around 3,277 and infected more than 81,439 in the country (WHO, March 24, 2020). The restrictions also took a toll on entry at the country’s major ports as well. Severe congestion due to vessel logjam, shrunken the number of ships docking in China.
US farmers are already throttling to export more of their soybeans to China as the industry is sitting on a record high of 28.5 million MT of soybean stock as of end 2019 as compared to 11.92 million MT in 2018 due to poor sales. Unfortunately, at the same time, Brazil’s enormous soybeans harvest and price advantage will likely to prevent US soybeans from being attractive Chinese. This is due to the seasonality advantage of Brazilian soybean commodity where harvesting season is around the corner which will offer fresher soybean as compared to the carried forward old stock from US.
In conclusion, the COVID-19 pandemic and the Brazilian Soybean advantage are expected to cause the non-fulfilment of phase one purchase targets between US and China although China has grant tariff exemptions for some crushers to import US soybeans. This is a blessing in disguise for Brazil as, the country of the football is forecasted to increase its import to China from 117 million MT to 124.0 million MT in 2020.
Prepared By: Lim Teck Chaii with Theventharan Batumalai and Desmond Ng
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