DES MOINES, Iowa A Chinese trade delegation signed agreements with U.S. grain companies on Wednesday to buy 8.62 million tones of soybeans from the United States and will ink more deals on Thursday for a record-setting purchase topping 12 million tones.
Although China-U.S. soy deals -- made during a visit by Vice President Xi Jinping to the United States -- have been dubbed by the industry as a political gesture, they come at a time of heightened Chinese demand.
China, which buys 60 percent of the soybeans traded in the world, is turning to the United States for more supplies as a drought threatens to curb production in South America.
Chinese powerhouses like COFCO Co Ltd, the country's largest state-owned grain trading house, and Sinograin, which manages state grain reserves, signed deals in Des Moines, Iowa, with Archer Daniels Midland (ADM.N), Bunge Ltd (BG.N), and Cargill Inc CARG.UL, among others.
The Chinese delegation was expected to sign more purchase agreements in Los Angeles on Thursday, which would bring the total amount to a record of more than 12 million tones, said Kirk Leeds, director of the Iowa Soybean Association.
The soybeans will come from supplies harvested last fall and the crop that will be planted this spring. The value of the purchases in total will be around $6 billion.
At a similar event last year, Chinese companies signed deals to buy 11.56 million tones of U.S. soybeans valued at $6.68 billion in the then largest one-off purchase of U.S. soy.
The high-profile event comes at a time when the United States and China are at odds over a series of issues like Beijing's currency policy, international action to quell the violence in Syria and a significant bilateral trade gap.
Hundreds of protesters climbed the steps of the Iowa statehouse in Des Moines, shouting 'Shame on China' and 'China lies, Tibetans die'. There were no demonstrations where the agreements were being signed.
"There is a lot of publicity about Chinese imports here. They want to remind Americans this is a two-way street. They buy from us, too," said Leeds, who helped arrange a visit by Xi to an Iowa soybean farm scheduled for Thursday morning.
The signing also comes at a time in which the United States has accused China of undervaluing its currency to give its companies a price advantage in international trade.
'KEEPING TRADE LINES OPEN'
"They are keeping their trade lines open despite their currency issue that has not only upset the United States but the rest of the world as well," said Shelley Goldberg, director of global resources and commodities strategy at research group Roubini Global Economics in New York.
Goldberg said it was uncertain if China was buying the soybeans for consumption or stockpiling.
The deals, signed after trading at the Chicago Board of Trade had ended for the day, were cheered by grain traders.
"This is a little surprising," said Rich Nelson, director of research at advisory firm Allendale Inc. "They had previously made announcements that they would not be buying as much as last year," he said.
A drought in Brazil and Argentina has prompted private importers in China to turn to the United States for additional supplies.
On Wednesday, Chicago Board of Trade soybeans got a boost after the U.S. Department of Agriculture confirmed sales of 116,000 tones of U.S. soybeans to China.
It was the third straight daily announcement of sizeable U.S. soybean sales, with the previous two sales earmarked for "unknown destinations" -- which could include China.
"The trade is looking for confirmation that China is set to buy more U.S. beans in preference to South America," said Adam Davis, a senior commodity analyst at Merricks Capital in Melbourne. "These types of announcements are made every year, it is symbolic and positive for the U.S. beans."
Still, traders in China said the deals were more of a political gesture.
"We don't read much from the number as crushers will later decide how much to buy and what price to quote for these orders," said one trader with an international trading house in Beijing.
Bian Zhenhu, president of China's Chamber of Commerce of Import and Export of Foodstuffs, Native Produce and Animal by-products, (CFNA) said improved relations between the world's two top economies was key in promoting more bilateral trade.
"I personally wish there was more common ground and mutual respect for the trading relationship," he said.
Michael Scuse, acting under secretary for Farm and Foreign Services, said Sino-U.S. trade ties, even in agriculture, faced many hurdles and cited problems related to U.S. efforts to export to China beef, apples, strawberries, among other products.
"There are a list of products we would like to get into China. They have a list. It is very important that we continue to have dialogues and discussions and build relationships.
"As the incomes in China continues to grow, the demand will continue to grow, and not just for soybeans but for other products as well," he said.