China's 'market condition' caveat on U.S. ag purchases adds to Phase 1 doubts

CHICAGO, Jan 15 (Reuters) - China’s pledge to buy U.S. farm goods based on “market conditions” during the Phase 1 trade deal signing ceremony on Wednesday added to doubts among farmers and commodity traders over the lingering tariffs on U.S. exports.

The agreement, meant to reduce tensions after nearly two years of a tit-for-tat tariff war, included a pledge by China to purchase at least an additional $12.5 billion worth of agricultural goods in 2020 and at least $19.5 billion over 2017 levels of $24 billion in 2021.

U.S. President Donald Trump’s insistence on a big commitment to buy farm products was a major sticking point in talks leading up to the signing, people briefed on the negotiations said, as China wanted the freedom to buy based on demand.

China’s Vice Premier Liu He, standing beside Trump, said on Wednesday Chinese firms will buy American products “based on market conditions.”

That sent future prices of U.S. soybeans, the top U.S. farm product shipped to China by value before the trade war, as much as 1% lower.

“Soybeans broke after that,” said Terry Reilly, senior commodities analyst with Futures International. “When the market dictates means they may not come back for 36 months. Who knows? It means when they need it and the price is right.”

Benchmark Chicago Board of Trade March soybean futures , have now shed nearly all the gains since the deal was announced on Dec 13. The text of the agreement published on Wednesday did not detail which products China intended to buy.

“I don’t know if the soybean market was ever convinced that we were going to see record purchases of soybeans,” said Joe Vaclavik, president of Standard Grain, a brokerage. “It never traded that way.”

Ted Seifried, chief strategist with brokerage Zaner Group in Chicago said a lack of specific purchase contracts was also disappointing.

The agreement did not reduce tariffs on major U.S. agricultural exports to China including soybeans, sorghum and pork, which is subject to a 68% tariff even as China’s pork demand increases as African Swine Fever ravages its own herd.

“I am positive and very appreciative, but we really need the tariffs to go away for our producers to realize the maximum benefit,” said David Herring, president of the National Pork Producers Council and a hog farmer in Lillington, North Carolina.

Trump said before the signing ceremony he expected tariffs to come off in a Phase 2 deal he would soon start negotiating.

The agreement text also says China will strive to purchase and import $5 billion per year of U.S. agricultural products, in addition to the minimal commitments over the next two years.

Chinese traders also expressed doubts.

“I feel like China is not getting anything out of it (the deal),” said one China-based crop trader before the ceremony. “Just spending some money for some peace in return.”


China promised to speed up its review of U.S. biotechnology products it imports to no more than 24 months, according to the agreement text. Delays in China approving new varieties of crops grown form genetically modified seeds have long frustrated the U.S. agricultural sector.

“We’re moving in the right direction with these biotechnology approvals,” Bill Gordon, soy farmer from Worthington, Minnesota, and American Soybean Association president said in an interview.

“Our work isn’t done. I think you’re going to have a lot of negotiations now and steps to relieve those tariffs,” said Gordon, who attended the White House signing.

China also made some concessions to the meat industry, agreeing to eliminate cattle age requirements for beef imports. The U.S. use of the growth hormone ractopamine, not permitted in China, has hampered meat exports in the past. China agreed to “conduct a risk assessment for ractopamine in cattle and swine as soon as possible,” the agreement said.

U.S. grain traders Archer Daniels Midland Co and Cargill both praised the Phase 1 agreement in separate statements. (Reporting by Mark Weinraub, Karl Plume, Julie Ingwersen and Tom Polansek in Chicago and Hallie Gu in Beijing; Writing by Caroline Stauffer; Editing by Marguerita Choy)