China Buying Commodities Anticipating Global Coronavirus Resurgence
Chinese domestic inventories of many commodities were drawn down during the US/China Trade war, but now China appears to be rebuilding and buffering its supplies of agricultural commodities, particularly meats, soybeans, corn, and soybean oil inventories, through aggressive international purchasing.
China has been buying South American soybeans and corn at a feverish pace, all as part of its normal seasonal pattern of buying grains and grain products from South America during the winter and spring, and then turning to the US in summer and autumn. The usual seasonal shift in buying patterns has begun, with the Chinese apparently reentering the US grain and ethanol markets in the past two weeks. The USDA even reported last week that the Chinese secured their first batch of US soybean oil since 2016.
China badly needs US agricultural products; with the South American grain exporting season winding down the Chinese are turning to the US for their agricultural needs. China’s swine herd, the world’s largest by far, was decimated in 2018 and 2019 by African Swine Fever causing concerns that domestic consumers in Asia’s largest economy would face an animal protein shortage. Chinese firms have been frantically buying pork, beef and chicken from around the world to make up for the loss of almost half of its pork production during the ASF outbreak. Total Chinese imports of US pork have increased by over 600 percent in the first quarter of 2020 versus the same time period in 2019 according to the USDA. Some of this volume appears to be motivated by fears of supply shortages due to the closure of US meatpacking facilities due to COVID-19 outbreaks.
Naturally, Chinese purchasing managers and traders will buy the least expensive product available, regardless of country of origin. China bought immense quantities of competitively priced grains from Brazil this winter; hence its purchases of major US grain products are still below the pace needed to achieve the USDA’s Chinese import estimates for US corn and soybeans in the current crop year. But as Brazil’s grain export season winds down, and as Chinese purchasers become concerned about reliability of supply with COVID-19 outbreaks increasing in South America’s largest agricultural exporting nation, buyers are now turning to the United States for much needed agricultural supplies.
The Chinese are masters of good public relations; any buying they do of US agricultural products will help them claim adherence to the trade deal even in the face of increasing negative rhetoric between US and Chinese leaders, even if those purchases are made out of fear and necessity.
In the meantime, the current Chinese shopping spree in the US, as it continues, will go a long way towards complying with the trade deal that was negotiated in March 2020.