- DTN Headline News
China Reduces Ag Tariffs
Monday, December 9, 2019 8:45AM CST
By Chris Clayton
DTN Ag Policy Editor

OMAHA (DTN) -- In a sign that U.S. agriculture may start to see greater access to China, the Chinese Finance Ministry on Friday announced it would start excluding some soybeans, pork and other agricultural goods from tariffs.

In a posted statement on its website, the ministry stated due to domestic needs, Chinese companies will be allowed to "import certain quantities of goods from the United States through market-based procurement."

The Customs Tariff Commission is excluding "some soybeans, pork and other commodities based on the application of relevant enterprises." With that, "For the procurement of goods within the exclusion range, the enterprise shall negotiate independently, import on its own, and bear its own profits and losses." No quantity levels were specified for the tariff waiver in the brief statement.

The move comes as a Dec. 15 deadline approaches when new 15% tariffs from the U.S. begin on $160 billion in Chinese goods. The U.S. and China right now are still trying to reach a phase one deal and Chinese officials have called for the U.S. to reduce or eliminate tariffs already in place as part of those talks. A spokesman for the Chinese Ministry of Commerce had said earlier in the week that "tariffs should be reduced accordingly" as part of that interim deal.

Pork exports to China right now face a normal 12% duty and 60% retaliatory tariffs while soybean exports to China face a 25% tariff.

President Donald Trump and Chinese leaders have been going back and forth all year. In September, Trump delayed a new round of tariffs against Chinese goods, saying the two sides were close to reaching a deal that would include a significant boost in Chinese imports of agricultural products.

DTN Lead Analyst Todd Hultman said China's announcement that it is carrying out the tariff waivers promised in September is in line with China's self-interest and "we shouldn't read too much into whether or not it means a limited trade agreement with the U.S. is close," Hultman said.

Before the tariff wars hit in July 2018, soybean sales were hitting about $14 billion a year in value but soybean exports dropped precipitously after the tariffs were set and China began importing more aggressively from South American countries. Keeping to a commitment to re-establish higher soybean sales, China has bought roughly 9.6 million metric tons (356 million bushels) of soybeans in the 2019-20 marketing year. That compares to about 19 million bushels sold the same time a year ago.

The move on soybeans allows China to take better advantage of lower U.S. prices and higher stocks following the U.S. harvest. "Soybeans are also important to the country and allowing Chinese companies to bypass China's own tariff means they have greater access to U.S. soybeans which are currently trading at FOB (Freight on Board) prices 43 cents cheaper at the U.S. Gulf than in Brazil," Hultman said.

The seasonal price advantage for U.S. soybeans typically lasts through January and then switches to Brazil as the next harvest becomes available. According to USDA, Brazil is on track to harvest a 4.52-billion-bushel crop in early 2020.

Also affecting China right now is African swine fever, which has eliminated as much as half of China's overall swine herd and sow population. Since midsummer in China, the price of pork has soared and China has increased its U.S. pork purchases despite its own tariffs. For 2019, the U.S. has exported more than 302,400 metric tons of pork to China and still has outstanding sales of 127,500 metric tons. Through October, the U.S. Meat Export Federation shows pork sales to China had high $974.8 million, up 34% from a year ago.

"It is no secret that the country has been importing pork to try to counter the price increases that have resulted from African swine fever," Hultman said.

Rachel Gantz, a spokeswoman for the National Pork Producers Council, said NPPC welcomes the reports and ideally that will translate into higher sales in the short-term. NPPC had just released a report highlighting that U.S. pork production could double if China removed all tariffs.

"Most importantly, NPPC seeks permanent removal of all punitive tariffs for at least five years to address China's unique pork supply need," Gantz said. "With African swine fever dramatically reducing domestic production, the United States is well positioned to meet China's need for safe, nutritious and affordable pork and to manage an emerging food price inflation challenge. In doing so, U.S. pork can single handedly put a huge dent in the United States' trade imbalance with China."

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

(CZ\SK)


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