China on Track to Exceed WTO Corn Quota With More Purchases

(Bloomberg) -- China stepped up global corn purchases after issuing more import permits, according to people familiar with the matter, setting the country on a path to meet or exceed its World Trade Organization commitment for the first time.

The Asian nation purchased at least 10 cargoes in the past two weeks after issuing another batch of permits that allow imports at lower tariffs, said the people, who asked not to be identified because the information is private. It’s possible that if all the permits issued by China in this latest round are filled, total low-tariff imports will go above the WTO quota of 7.2 million tons, two of the people said.

The corn can come from any producing country acceptable by China, but will most likely be shipped from the U.S. or Ukraine given prices, one of the people said. The purchases could also help the Asian nation meet its commitment made under the phase one trade deal with the U.S., with China so far sticking to its plan to accelerate imports of American farm goods after talks in Hawaii despite rising tensions.

China’s been under pressure to fulfill its import quotas set by the WTO, which also include rice and wheat. The country last year lost a dispute brought by the U.S., which argued the quotas were not being fairly administered, creating a hurdle for exports to the world’s second-biggest consumer of the grain.

Relations between the two countries have become increasingly strained, with President Donald Trump blaming the Asian nation for misleading the world about the scale and risk of the coronavirus outbreak, and criticizing China for imposing a controversial new national security legislation on Hong Kong.

The U.S. is preparing to roll out long-delayed sanctions to punish senior Chinese officials over human-rights abuses against Muslims in Xinjiang, two people familiar with the matter said, part of a toughening of the Trump administration’s stance toward Beijing.

Former National Security Adviser John Bolton asserts in his new book that Trump personally urged Chinese leader Xi Jinping in 2019 to help him win re-election by buying more farm products.

Corn futures traded in Chicago gained as much as 0.5% on Thursday after jumping 2.6% the previous day.

Import Quotas

China had already issued about 6.3 million tons in corn import quotas by the end of April, people familiar said at the time. The country is likely to utilize its entire low-tariff quota this year due to attractive import margins and strong domestic demand, Bryan Lohmar, director of U.S. Grains Council in China, said in May.

Under the quotas, import duties are as low as 1%, compared with 65% without the quotas. China’s National Development Reform Commission didn’t immediately respond to a faxed request for comment outside of normal business hours. China’s customs didn’t immediately to a telephone request for comment outside of normal business hours.

Chinese corn prices have been on the rise as the government has been selling its stockpile in recent years. Reserves are expected to fall for a fourth year in the 2020-21 season, the USDA estimates. All of that is making American and Ukrainian corn more attractive.

“There continues to be talk that they need the corn, and that they may have blown too much out of the reserve onto the free market over the past few years,” said Charlie Sernatinger, global head of grain futures at ED&F Man Capital Markets Inc. in Chicago.

©2020 Bloomberg L.P.

With assistance from Bloomberg