Farmer John Duffy loads soybeans from his grain bin onto a truck before taking them to a grain elevator in Dwight, Illinois, USA on June 13, 2018.
Scott Olson | Getty Images
The news that Beijing has ordered state companies to stop buying agricultural products could be an opportunistic political maneuver resulting from the fundamental weakness on the demand side in China, analysts said.
On Monday, Reuters reported that China asked key state-owned companies to stop bulk buying key US agricultural products such as soybeans and pork. This was in response to President Donald Trump, who said last week that he would withdraw Hong Kong̵
But the demand for soybeans was not strong in China anyway.
“In part, it is because the virus outbreak (that) actually affected logistical agreements between China and the United States, and even after the virus outbreak, we see that domestic demand in China is indeed collapsing,” said Hao Hong. Head of research and chief strategist at the Bank of Communications.
Although China’s economy is gradually recovering, people are no longer spending as much and eating out as before, which helps explain the lower need for soybeans that are normally used in animal feed.
“Given logistical concerns and the slump in domestic demand, it’s not difficult to see how China needs fewer soybeans,” Hong told CNBC on Tuesday.
In April, China’s imports of US goods in US dollars fell 11.1% year-on-year.
Chinese importers have also canceled deliveries of American pork and suspended government purchases of bulk U.S. corn and cotton, according to Reuters. China is the world’s largest pork consumer and importer.
China reported an outbreak of African swine fever in a northwestern province just last week. The outbreak of swine fever decimated China’s herds of pigs and depressed the demand for soybean feed even before the outbreak of the corona virus.
Arlan Suderman, chief economist for commodities at INTL FCStone, said in a tweet on Monday that the suspensions could be temporary.
“Because of the current deliveries, deliveries are sufficient in the short term, so that China has the freedom to threaten,” said Suderman.
Bocom’s Hong said he would not be surprised if Chinese demand for US soybeans would return should the economy recover in a V-shape in the second half of the year.
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 soybean importer.
As part of the U.S.-China Phase 1 trade agreement signed in January, China had agreed to buy $ 32 billion of U.S. agricultural products over the next two years compared to 2017.
Rural voters make up an important part of Trump’s electoral base.
Chinese state-owned companies bought at least three loads of US soybeans on Monday, Reuters reported.
According to the U.S. Department of Agriculture report released in May, the World Agricultural Supply and Demand Estimates, soybean exports are expected to reach 1.675 billion bushels in 2019-2020, a 4.2% decrease from a year earlier.