China Expected to Purchase U.S. Commodities to Rebuild Reserves

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China is looking to purchase up to 30 million tons of crops from the U.S. to help rebuild state stockpiles. Reuters reports that the Asian nation is looking to protect itself from further supply chain disruptions brought on by the COVID-19 outbreak. It would also help China make good on its Phase One Trade Agreement promises to buy more U.S. crops.

China is planning to buy approximately 10 million tons of soybeans, 20 million tons of corn, and one million tons of cotton and add them to its state reserves. Reuters says those numbers come from two of the sources who were briefed on the government’s plan. The bulk of the crops are expected to come from the United States.

The timing of the potential purchases seems to favor China. The price of U.S. commodities have been under pressure amid the COVID-19 pandemic, while Chinese soybean and corn futures are nearly double those in the U.S. The total value of the purchase of corn and soybeans from the U.S. is estimated at $6.25 billion.

China has already purchased 12.5 million bushels of U.S. hard red winter wheat in 2020. That was the largest purchase in two years, but still far short of their tariff rate quota.

“The main message from Beijing is to help secure people’s livelihoods,” one of the sources tells Reuters. “It’s a good time to build up reserves, especially when the prices of the goods are at quite low levels.” Beijing is also planning to buy one million tons of sugar and two million tons of soybean oil to add to its reserves. The sources aren’t clear on where those supplies would be coming from.

However, it appears not everyone is happy with the idea. Bloomberg points out that there is some opposition to the planned buys. Some officials are questioning whether the government should be trying to expedite U.S. purchases given the downturn in the Chinese economy after the coronavirus outbreak. The current round of discussions on the purchases is reported to be at the lower levels of the Chinese government, with no final decision made yet.

 


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