Ag Trade Skeptical of Chinese Corn Buys

February 21, 2019 02:19 PM

U.S. and Chinese negotiators are wrapping up another week of intense trade talks as news outlets in China report a deal is coming soon.

During talks this week, U.S. news outlet Bloomberg said China is proposing to buy an additional $30 billion a year of U.S. agricultural products including soybeans, corn, and wheat. The purchases are said to be on top of pre-trade war levels and would likely continue for a set period of time.

AgResource President, Dan Basse says if true, the impacts would be significant.

"If we get a $35 to $45 billion dollar package and by that, I'm saying a pledge by our friends in China to buy that much annually, that would be a significant deal," says Basse.  "If you start parceling it out in terms of what it means for ag products you start coming up with numbers of 12 to 15 million tons of corn, 35 to 40 million tons of beans, wheat would be included along with meats."

Basse says that kind of a commitment would be a real bump in the arm for U.S. agriculture. Agriculture Secretary Sonny Perdue told reporters during the ag outlook conference that it's premature to comment on these proposals.

"These are proposals and counterproposals and they are all contingent upon a resolution of the core issues of structural reform, They have committed [to buy] quantities that are significant... but it's all contingent on the whole deal coming together.

In recent weeks even President Trump has mentioned corn while discussing trade negotiations with China. 

"President Trump is not a corn type of person so something's obviously going on here," says Basse. "That would indicate {to me} that the Chinese are looking at corn and we hear may be an initial purchase up to 5 million metric tons." 

Corn has been trying to crack the door with China for years. Arlan Suderman of INTL FC Stone posting this chart on Twitter with the comment, "U.S. corn exports to China have been quite small since 2013."  

Sales of Corn to China from the U.S.

Sudderman, like many others in the commodity trading pits, is skeptical of seeing any real or significant purchases by the Chinese. 

"I've said for months that corn, soybeans, grain sorghum, wheat, ethanol, DDGS, pork, crude oil & LNG should benefit from an eventual trade deal, but the core structural issues are the key long-term," said Sudderman via Twitter. "China agreed to a lot of changes with WTO that it hasn't kept as well."

During the trading day Thursday following the reports of renewed buying, corn futures at the CME Group rose but closed only about 5 cents higher in the nearby contracts. 

"We take this news with a grain of salt," said Oliver Sloup of Blue Line Futures. "We've seen this plenty of times before and to buy the rumor sell the news we need to see some sort of real substance and something in writing with regard to what that deal would entail."

Sloup says the rumored $30 billion annual purchase did help to negate recent bearish technicals including USDA forecast for 92 million acres of corn to be planted in 2019. That was reported Thursday during the agency's annual Agricultural Outlook Forum. 

Doug Werling with Bower Trading echo's Sloup's skepticism. During an interview with Tyne Morgan on AgDay-TV he said the purchases have to be real and significant.

"Well the market is taking a stance that talk is cheap," says Werling.  "It has to be a significant amount and much more than anybody's even thinking."

Werling says China moving into the market is only a $.10 to $.20 bump while planting and carryover are likely to have a much larger impact.

"Until we get rid of this China [related] gray cloud over the markets, supply and demand don't carry the weight they used to," says Werling. "You're just stuck in purgatory right now." 

Basse says agriculture is easy math when it comes to reducing the trade imbalance. Solving the other issues with China like forced technology transfers, intellectual property theft and rolling back barriers to trade is likely to be much more difficult.

"I think that's a difficult task and hopefully [the President] leaves that aside and really looks to the election with a clean slate on trade," says Basse. "If so we should see some benefits that come to not only energy but agriculture."

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