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China Commits Purchase Of $50 Billion Worth U.S. Agri Products; Market In Wait & Watch Mode

14 Jan 2020 1:10 pm
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Mumbai (Commodities Control) – China has committed to increase purchases of U.S. agricultural products to $40 billion-$50 billion annually. It is expected that soybeans, China’s biggest agricultural import from the United States, would make up a big part of any such purchases.

Recent customs data reveals, China’s soybean imports in December surged 67% from a year earlier to a 19-month-high, as a flurry of U.S. and Brazilian cargoes booked earlier cleared customs.

Meanwhile according to a source briefed on a trade deal to be signed on Wednesday, China’s pledge to buy nearly an additional $80 billion of manufactured goods from the United States over the next two years and over $50 billion more in energy supplies.

Just a day before the much-awaited ‘Phase-1’ signing ceremony, most of the agri-commodities traders are on the edge. Market participants refrained from taking or holding huge positions, reflected in trade volumes.

U.S. soybean futures declined on position-squaring as traders waited to see if a U.S.-Chinese trade agreement due to be signed on Wednesday will herald a significant increase in demand for U.S. crops.

"It's 'wait-and-see' until Wednesday, and we see what the trade agreement brings to the market. In the meantime, we are not doing much of anything. There is not a lot of trade (and) volumes are light," said Terry Linn, analyst with Linn and Associates, a Chicago brokerage.

The agreement, first announced a month ago, helped CBOT soybeans rally to their highest since June 2018 at the start of January as it raised hopes that China, the world's biggest soybean importer, would revive imports of U.S. supplies.

Meanwhile ICE cotton futures rose hitting a more than eight-month high, supported by the trade deal optimism. China expects higher cotton imports for 2019/20 on prospects of a Sino-U.S. trade deal. Cotton imports for the year are now seen at 1.8 million tonnes, up 200,000 tonnes from last month's forecast, as per the Government monthly crop report.

The Phase 1 agreement calls for Chinese purchases of U.S. agricultural goods to increase by some $32 billion over two years, or roughly $16 billion a year, the source said. When combined with the $24 billion U.S. agricultural export baseline in 2017, the total gets close to the $40 billion annual goal touted by U.S. President Donald Trump.

The $32 billion agriculture increase over 2017 was confirmed by Myron Brilliant, the U.S. Chamber of Commerce's head of international affairs, who spoke to reporters in Beijing.

The numbers are expected to be announced on Wednesday at a White House signing ceremony between Trump and Chinese Vice Premier Liu He.

When the Phase 1 trade deal was struck on Dec. 13, U.S. officials said China had agreed to buy $200 billion in additional U.S. farm products, manufactured goods, energy and services over the next two years, compared to the baseline of 2017.

They said they would publish targets for the four broad areas, but would keep details of specific products classified to avoid market distortions.

Trump had mainly touted the increased farm exports, which would benefit a major political constituency that has been battered by Chinese retaliatory tariffs during his 18-month trade war with Beijing.

Many economists and experts are dubious that the Phase 1 trade agreement will be implemented as written, despite what U.S. officials describe as an important enforcement clause in the deal.

That enforcement mechanism allows grievances to be aired through escalating consultations that would reach Chinese Vice Premier Liu He and U.S. Trade Representative Robert Lighthizer.

If a U.S. claim of Chinese non-compliance cannot be resolved, Washington would have the right to reimpose tariffs on Chinese goods in proportion to the economic damage alleged. But nothing would preclude China from retaliating, returning the two sides to the current status quo, people familiar with the deal said.

Lighthizer called the deal a "huge step forward" for U.S.-China trade relations and "a really, really good deal for the United States." He told Fox Business Network that Beijing's compliance would be monitored closely.

"We expect them to live up to the letter of the law. We'll bring cases, we'll bring actions against them if they don't," Lighthizer said.

(Commodities Control Bureau+91-22-40015502)

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