China's Agricultural Imports under the Phase One Deal: Is Success Possible?

This version updates the November 2020 version of CARD policy brief 20-PB 29 using monthly data until December 2020, weekly data until January 21, 2021, and daily export sales notices until January 29, 2021. We examine China's committed agricultural purchases under the phase one trade deal and whether it can fulfill those commitments. We review China's agricultural imports from the United States in 2020. We focus on corn, soybeans, cotton, sorghum, pork, beef, poultry, and ethanol. We also examine China's agricultural imports from non-US countries, compare the FOB and CIF prices of major agricultural commodities from the United States and its major competitors, and review tariffs charged on US products to understand the competitiveness of US agricultural exports to China. US monthly export data show China imported $27.3 billion worth of agricultural and related products from the United States in calendar year 2020, which is around 74.8% of the first-year trade deal obligation of $36.5 billion. US weekly export data until January 21, 2021, show that, overall, China's purchases of US corn, pork, beef, poultry, sorghum, and cotton are making good progress. Specifically, for corn, as of January 21, 2021, China had imported a record 2.11 million metric tons for the 2019/20 marketing year, 5.94 million metric tons for the 2020/21 marketing year to date, and has an outstanding 5.90 million metric tons for delivery in the 2020/21 marketing year. In addition, USDA's daily export sales report shows new corn sales to China of 1.36 million metric tons, 680,000 metric tons, 1.7 million metric tons, 2.108 million metric tons, and 596,000 metric tons on January 26, 27, 28, and 29, respectively, resulting in a minimum of 17.69 million metric tons in advanced sales for marketing year 2020/21, far exceeding the 357,500 metric tons for the 2017/18 marketing year. US weekly export data show that China has imported 16.26 million metric tons of US soybeans for the 2019/20 marketing year, 31.12 million metric tons for the 2020/21 marketing year to date, and has an outstanding 3.62 million metric tons for delivery in the 2020/21 marketing year. In addition, USDA's daily export sales report shows new soybean sales to China of 136,000, 132,000, and 132,000 metric tons on January 22, 27, and 29, respectively, resulting in a minimum 35.13 million metric tons of soybeans committed for delivery for the 2020/21 marketing year, exceeding the 27.68 million metric tons for the 2017/18 marketing year. For meat products, China imported a record 707,554 metric tons of US pork and 43,681 metric tons of US beef in the 2020 calendar year-much higher than the 56,208 metric tons of US pork and 2,089 metric tons of US beef in the full 2017 marketing year. Furthermore, China has ordered 124,444 metric tons of US pork and 33,379 metric tons of US beef for the 2021 marketing year as of January 21, 2021. The upward trend we find seems likely to continue due to China's strong demand for meat. China's corn imports from all sources reached 11.3 million metric tons in 2020 (GACC 2020), exceeding its corn tariff rate quota for the first time. Given that China has imported 5.94 million metric tons of US corn in the current marketing year, with an outstanding 11.75 million metric tons for delivery, as of January 29, 2021, China is also on track to far exceed its tariff rate quota in 2021. In the 2020 calendar year, China's total agricultural imports reached $170.8 billion, a 35.7% increase from the $125.8 billion in 2017. However, China sourced 84.8% of its agricultural imports from non-US sources in 2020, which, in part, reflects a continued diversification away from US agricultural imports before and during the trade war. Specifically, in 2020, China imported 55% of its corn from Ukraine and 64% of its soybeans from Brazil. However, China's record US corn booking in recent weeks indicates there is still a lot of room for US corn and soybean exports to China in the following months. While the United States accounted for 88% of China's sorghum imports in 2020, US meat products face strong competition from the EU, Brazil, Australia, and Argentina. In 2020, the EU accounted for 58% of China's pork imports, and Brazil, Australia, and Argentina accounted for 74% of China's beef imports. We use linear extrapolation that accounts for seasonality and trend to predict China's total US and non-US agricultural imports based on 2017 seasonal patterns and China's most recent US agricultural purchases, which includes advanced corn and soybeans sales until January 29, 2021. Specifically, we assume that the advanced corn and soybean sales will be delivered in the first year of the trade deal. We find that China is on track to import $35.8 billion in agricultural products from the United States in the first year of the trade deal if the ordered corn, soybeans, and ethanol are delivered on time (February 15, 2020, to February 14, 2021). We also analyze monthly FOB and CIF prices of China's agricultural imports from the United States and its major competitors and find that the FOB prices of US corn, soybeans, and pork are comparable to that of Ukraine corn, Brazil soybeans, and EU pork. However, the CIF prices of US corn and soybeans are higher than the CIF prices of Ukraine corn and Brazil soybeans due to higher transportation costs and retaliatory tariffs that China imposed on the United States. In addition, the recent depreciation of the Brazil real coupled with the strengthening of the US dollar significantly boosted the price competitiveness of Brazil soybeans. Due to the tariff exemptions since March 2020, the gap between US corn and soybeans and Ukraine corn and Brazil soybeans have been dwindling, creating more room for China to import US corn and soybeans in the following months. In addition, since the beginning of 2020, US pork CIF prices have been lower than those of EU pork, indicating that US pork is gaining competitiveness over EU pork. However, the FOB price of US beef is much higher than that of Brazil beef, in part because US beef is grain fed.