Farmer John Duffy loads soybeans from his grain bin onto a truck before taking them to a grain elevator on June 13, 2018 in Dwight, Illinois, USA.
Scott Olson | Getty Images
News that Beijing has ordered state-owned companies to stop buying agricultural products may well be an opportunistic political maneuver stemming from fundamental demand-side weakness in China, analysts said.
On Monday, Reuters reported that China has asked the most important state-owned companies to suspend major purchases of major US agricultural products such as soybeans and pork. It came in response to President Donald Trump, who said last week that he would remove Hong Kong of its special status with the U.S.
However, demand for soybeans has not been strong in China.
“In part, because of the virus outbreak (it) that actually worsened the logistics arrangements between China and the United States, and even after the virus outbreak, what we see is that domestic demand in China is actually collapsing,”
Although the economy is gradually recovering in China, people do not spend and eat food as much as before, which helps to take into account the lower need for soybeans – usually used in animal feed.
“With logistical problems and even with the collapsing domestic demand, it is not difficult to see how China would require less of the soybean flow,” Hong told CNBC on Tuesday.
In April, China’s imports of US goods fell by 11.1% in dollars compared to a year ago.
According to Reuters, Chinese importers have also suspended supplies of American pork and the temporary purchase of government volumes of US corn and cotton as well. China is the world’s largest pork consumer and importer.
Just last week, China reported an outbreak of African swine fever in a northwestern province. The outbreak of swine fever has reduced China’s pig herds and received demand for soybean feed even before the coronavirus outbreak.
Arlan Suderman, head of commodity economics for INTL FCStone, said in a tweet on Monday that the closures may be temporary.
“Deliveries are sufficient in the short term because of current transportation, giving China freedom to threaten,” Suderman said.
Bocom’s Hong said he would not be surprised to see Chinese demand for US soybeans returning if the economy experienced a V-shaped recovery in the second half.
After all, the United States is a major exporter and a major source of China’s soybean imports and China is the world’s largest importer of soybeans.
During the first phase agreement signed by the US and China in January, China had promised to buy an additional $ 32 billion in US agricultural products relative to the 2017 level over the next two years.
Rural constituents are an important part of Trump’s electoral base.
Reuters already bought Chinese state-owned companies at least three loads of US soybeans on Monday, Reuters reported.
According to the US Department of Agriculture, in its report on agricultural supply and demand from agriculture released in May, soybean exports during the 2019 to 2020 marketing year are estimated to be 1.675 billion bushels – down 4.2% from a year earlier.