Grain markets rallied on Monday, led by soybeans, in response to the first confirmation of China lowering it’s tariffs on U.S. ag goods.
China Confirms It’s Dropping Tariffs on U.S. Ag Goods
A China Daily article noted the U.S. and China have set guiding objective for expanding two-way agricultural trade.
The Chinese Ministry of Commerce says the parties have agreed to include ag products under a reciprocal tariff reduction agreement.
The U.S. will reportedly end it’s 10% fentanyl tariff and China will reciprocate by dropping it’s 10-percent tax on U.S. ag goods, including soybeans and grains.
While, not yet confirmed by the U.S. Trade Representative’s office, Arlan Suderman, chief commodities economist, StoneX says that fits the narrative.
“Now, what we heard back in May through our sources was that the plan was to have the 10% retaliatory tariffs lifted on all products in time for all products arriving after October 1. So that would be the time when they tend to take, historically, have taken much of what they’ve taken in the way of U.S. soybeans when the flow of soybeans from Brazil tends to slow.”
Lower Tariffs Makes U.S. Soybeans More Competitive
He says China lowering the 10% tariff on soybeans would make U.S. product more competitive, but not cheaper than South America.
“We don’t have any offers Monday morning out of Brazil for October delivery into China, but for both August and September, they’re still 50 to 60 cents below what it would be for U.S. soybeans arriving from the Gulf landed in China,” he explains.
However, it would make it more economically feasible for China’s commercial crushers to buy, as the first 12 million metric tons (MMT) of Chinese soybean purchases were done by state owned firms such as Cofco and Sinograin, which can waive the tariffs.
Some talk from Chinese sources indicates Beijing will buy 15 MMT by December 31 according to Suderman, leaving the remaining 10 MMT committed to in their Oct. 30 framework until after the U.S. mid-term election.
Lower Tariffs on Corn, Wheat
He notes that the 10% tariff drop on U.S. wheat and especially corn would make a bigger difference.
U.S. corn has been competitive into China already and removing the retaliatory tax would help entice China to make some purchases.
Development of a Board of Trade
Meanwhile, the U.S. and China are developing a Board of Trade to separate agriculture trade from sensitive issues like rare earth minerals.
However, Suderman says trade will still be tied to the value of our currencies and embroiled in politics.
“And so if you have this trade commission, this board of trade set up, they still got to deal with this. China is still going to want to leverage whatever it can to be able to access our vast consumer market, as well as to access the technology that it wants in the United States and agriculture is going to be a very tempting leverage tool for them to use.”
The Federal Register indicates the final comment period on the Board of Trade concept ends July 10.
