Is Phase One or Politics Driving China’s Record Appetite for U.S. Ag Products?

China’s hunger for American grown agricultural commodities looks to be growing, with the biggest week of corn purchases from China ever.

With a record week of corn buys last week, this U.S. Grains Council’s visual says it all.  Four of the top 25 U.S. corn export sales announcements came last week, and all to China. That included Friday’s announcement by USDA, which confirmed China made the second largest buy of corn ever from the U.S.

It wasn’t just corn China was interested in. The CFO of Archer-Daniels-Midland (ADM)DM told investors last week that China also committed to buy 200 million gallons of ethanol, which would be the largest purchase of U.S. ethanol ever by China in a given year. The country says it will take delivery of the 200 million gallons of U.S. ethanol in just the first six months of 2021.

“That would be a significant purchase,” says Edward Hubbard of Renewable Fuels Association (RFA). “That would be something that would shake the industry up.”

The renewed demand is a good sign for U.S. corn farmers, and purchases that come as a relief for a struggling domestic biofuels industry.

“Based on the Phase One agreement last year, we thought China would come after ethanol like they’ve come after corn, and to finally see that starting to take place is really, really encouraging,” says John Linder, an Ohio farmer and grower president of National Corn Growers Association (NCGA). “Our ethanol industry is really needing to move product to stay healthy and whole.”

China coming back to the U.S. for ethanol after several years of a purchasing drought seems to be adding fuel to the Chinese demand story.

“China has had record corn and wheat exports in particular, which have been great and really helped a lot of our farmers who have been hurting,” says Brian Kuehl, co-executive director of Farmers for Free Trade.

What's Behind all the Buys?

The increased interest from China comes as reports show it may be facing food shortages. But trade experts say it’s also due to increased feed needs.

“They've been clear that they're trying to stockpile some of their feed,” adds Kuehl. “Second is they're in the process of trying to rebuild from African Swine Fever (ASF).”

?? New data released today from @uscensusbureau shows #China bought $27.3B in #Phase1 #agricultural products from U.S. during calendar year 2020 w/ nearly $15B in 4Q alone @FarmBureau pic.twitter.com/jugaTq0eE6 — John Newton (@New10_AgEcon) January 27, 2021

While Chinese purchases continue to ramp up, data released in January showed China fell short of its Phase One trade promise. Despite the miss, the total purchases were up considerably from 2019.

“If you go back to 2016, and 2017, we were exporting about $20 billion to $23 billion in products to China every year,” explains Kuehl. “Then we had the trade wars start and those drop down to about $9 billion in exports. So, we more than halved the amount we were exporting this year, but we've come back to about that pre trade war level, which is great.”

Whether it’s to fulfill Phase One promised, or an increased need for feed, some say the timing of the record Chinese buys isn’t a coincidence.

“The timing is certainly curious as the new administration comes in,” says Arlan Suderman of StoneX Group. 

“I would like to say that this had nothing to do with the new administration, but the timing of it is a bit suspicious,” says Hubbard. “If I were China, and I saw a transition of power like that, I would want to make a good showing to the incoming president, that China is serious about its agreements.”

While President Joe Biden hasn’t outlined his approach to trade, Washington insiders think he will stay tough on trade, but environment and labor may headline trade discussions in the future.