The Latest Sign of a U.S.-China Trade Truce: Corn

(Bloomberg) -- Corn futures gained on Friday after Chinese officials were said to be preparing to restart purchases of American supplies as soon as January in another sign that China is working on a lasting detente with the U.S.

The Asian nation may buy at least 3 million metric tons of U.S. corn, according to people familiar with the discussions, who declined to be identified as the information is confidential. Corn for delivery in March gained as much as 0.8 percent in Chicago as soybeans and wheat declined.

The Chinese government is also considering various options for how to handle the 25 percent retaliatory tariffs on American corn that China adopted in July, the people said. Current ideas include:

  • Allowing the U.S. commodity to be purchased as part of a 7.2 million ton annual corn import quota that is only subject to a lower levy
  • Reimbursing the 25 percent tariff to buyers purchasing outside the quota
  • Waiting to purchase until after the 25 percent tariffs are removed

Read more: China’s Soy Buy Could Pave Way for Expanded U.S. Corn Imports

The plan to resume imports follows reports China began significant purchases of American soybeans this week after President Xi Jinping and his American counterpart Donald Trump agreed on a 90-day truce to work toward a trade deal earlier this month. China’s retaliatory tariffs struck at Trump’s heartland voters, who saw agriculture shipments to the world’s biggest buyer of commodities plunge, stockpiles accrue across the U.S., and futures drop.

China effectively suspended corn purchases from the world’s biggest producer in July by imposing the 25 percent tariff as the two nations escalated their trade war. Purchases within the annual corn import quota would allow buyers to pay just a 1 percent tariff, while those outside the quota are subject to a 65 percent duty.

Unlike soybeans, where China has historically purchased about a third of the U.S. harvest, the Asian nation hasn’t been a significant buyer of American corn for several seasons. China is the world’s second-largest producer of the grain, and the last time it bought more than 3 million tons of U.S. corn in a calendar year was 2013, U.S. Department of Agriculture data show.

The Latest Sign of a U.S.-China Trade Truce: Corn

Shipments of American grain will help replenish China’s depleted reserves and cover a widening domestic shortfall, according to analysts. Purchases for state reserves would allow importers to avoid the duty and benefit from cheaper U.S. produce, just as China’s domestic need for animal feed, starch and sweeteners grows apace, the analysts said.

China is forecast to import 5 million tons of corn in the 12 months that began in October, the most in four years, USDA forecasts.

The potential for corn sales comes as the Trump administration has been pushing China to make agricultural purchases beyond soybeans as part of “good faith for the discussions” to ultimately end the spat, U.S. Agriculture Department Deputy Secretary Steve Censky said on the sidelines of the Iowa Soybean Association meeting Thursday.

“We want to see them buy other crops,” Censky said on the sidelines of an industry meeting in Iowa. “The expectation is that they need to be purchasing agriculture products that frankly have been affected by the retaliation that has taken place.”

Prices
  • Corn futures for March delivery on the CBOT rose as much as 0.8% to $3.87 1/2 a bushel
  • March wheat futures -0.8% to $5.31 1/2 a bushel in Chicago
  • Soybean futures for March -0.7% to $9.14 a bushel

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