Soyabean markets slid after the US and China signed a long-awaited preliminary trade agreement, reflecting uncertainty about Beijing’s promises to purchase more farm goods.
The oilseed has historically been the biggest US farm export to China, which uses it to make livestock feed and cooking oil.
China’s government on Wednesday committed to imports of at least $80bn worth of US farm goods over the next two years, or an average of $40bn a year, the US Trade Representative’s office said. The list includes bulk commodities such as soyabeans and cotton as well as consumer products such as dietary supplements and wine.
The agreement also allows China to make purchases “at market prices based on commercial considerations” and consider “market conditions” in timing them.
The latter provision raised questions about the whether China would follow through between now and 2021, said Ken Morrison, an agricultural markets analyst based in St Louis.
“I can find more ways that lead to this deal falling short than I can find reason to believe that they can meet the commitment,” he said.
Mr Morrison added that because the commitment was in dollars, rather than tonnes, it risked making the target harder to reach if US prices for agricultural goods decline over the next two years.
Such was the case with soyabeans, which dropped by 1.4 per cent to settle at $9.42 a bushel in Chicago after the trade deal was signed.
China did not abandon retaliatory tariffs on US agricultural goods, noted Veronica Nigh, an economist at the American Farm Bureau Federation. Robert Lighthizer, the US trade representative, told reporters he expected China in some cases to grant exclusions from the retaliatory tariffs.
On top of sales of $24bn set during a baseline year of 2017, China committed to purchase at least $12.5bn more in 2020 and $19.5bn more in 2021, as well as to “strive” for an extra $5bn each year, according to the text of the agreement.
The sums would surpass the US farm exports to China of any previous year.
“I think the market’s reaction to the phase one trade agreement with China can be characterised as, ‘If something looks too be good to be true, it probably is’,” Scott Irwin, an agricultural economist at the University of Illinois, said on Twitter. He held out the possibility that China could surprise the market with strong purchases, but noted the “escape clause” allowing adjustments for market prices.
Sales of US pork could increase sharply under the deal as China scours the globe to replace meat supplies lost to its African swine fever epidemic. Beijing committed to undertake a “risk assessment” for ractopamine, a pig growth supplement that is used by US farmers that is banned in China, potentially paving the way to greater exports.
Lean hog futures closed unchanged on Wednesday at 75 cents a pound.
Additional reporting by James Politi in Washington