U.S. disapproval of China's grain stockpiling full of irony -Braun

[July 26, 2022]  By Karen Braun

NAPERVILLE, Ill. (Reuters) -Rocky trade relations between the United States and China have recently taken a back seat to the conflict between major grain exporters Ukraine and Russia, but U.S. officials fanned the flames on Friday, accusing Beijing of stockpiling grain amid a global food crisis.

That criticism, however, is a bit thorny given the Phase 1 trade deal still in place saying China will buy unprecedented amounts of U.S. farm goods, obligations which have not yet been met.

The U.S. comments on Friday came amid pledges to hold Russia accountable for implementing the newly signed Ukraine export deal, aimed at restarting grain shipments that have been trapped in the country since the invasion five months ago.

Rising food prices have recently increased hunger fears for developing countries, and U.S. officials pointed out that China could tap its stockpiles to “provide more grain to the poor people around the world.”
 

They went on to label Ukraine’s large share of post-invasion grain shipments to China as “awkward,” probably without considering that China is Ukraine’s top corn buyer and the deals were likely done before the war began.

Ukraine's total grain shipments in April, the time in question, was only one-third of the April 2021 volume.

Chinese representatives responded on Friday with harsh criticism of the United States’ use of food for energy, calling it irresponsible. U.S. government estimates peg U.S. corn used for ethanol at 137 million tonnes in the upcoming marketing year, some 37% of total use.

That volume is equivalent to about three-fourths of annual world corn trade.

TRADE DEAL

China has been increasingly known in recent years for its expanding share of global grain stocks, intended for food security. According to the U.S. Department of Agriculture, China will have 65% of the world’s corn by next year, consistent with recent averages, but a record 53% of the world’s wheat will be held there.

Industry estimates on corn stocks vary widely, but most agreed China had sufficient supply, which is why it was somewhat surprising for huge U.S. corn purchases to surface in mid-2020.
 

 Chinese and U.S. flags flutter outside a company building in Shanghai, China November 16, 2021. REUTERS/Aly Song

That came months after the Phase 1 trade deal was signed between Beijing and the Trump administration, an agreement under which China would boost its U.S. agricultural purchases by dollar value by at least 50% above 2017 levels.

Calculations at the time suggested China could not possibly need that degree of imports, which turned out to be true even as prices further skyrocketed over the last year, substantially increasing the trade value. But the deal was seen as a win for U.S. agriculture, which was hurt in mid-2018 when the trade war began and China cut off U.S. purchases.

The Biden administration has been notoriously quiet on the Phase 1 deal since taking office in January 2021, though administration officials have mentioned that the agreement will still be enforced.

U.S. officials as recently as February pointed out China’s significant shortfall in 2021 purchase commitments, calling for “concrete action” on the promises. Beijing blamed COVID-19 and supply-chain disruptions for missing the targets.

However, if the official U.S. stance is to put humanitarian needs first, then the Phase 1 trade deal, a binding agreement that gives China license to buy extraordinary volumes of U.S. grains, may need to be immediately reconsidered.

Although larger than in other recent years, China’s grain haul so far in 2022 is down from last year’s records. In the first half of the year, corn imports were 11% lower than last year, wheat 8% lower and barley was down 33%.

The United States may not be sharing as much of its corn with China in the next several months if new talks succeed between Brazil and Beijing regarding shipment of 2022 corn. Previously, China and Brazil’s export agreement was likely to take effect for Brazil’s 2023 harvest.

Karen Braun is a market analyst for Reuters. Views expressed above are her own.

(Editing by Matthew Lewis)

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