US, China agree phase-one deal, tariffs to be removed

Trade delegates from China and the US have reached consensus on a long-waited “phase-one” deal that encompasses various areas including food and agricultural products, top Chinese officials said in a press conference Friday.

The agreed terms span across different areas from intellectual property and knowledge transfer to food and agriculture.

“The two sides reached an agreement that the United States will fulfill its relevant commitments to remove tariff increases on Chinese products in stages and realize the transition from increasing to decreasing tariffs," officials said.

US President Trump said shortly after the press conference that "a very large phase one deal with China" has been agreed and talks on phase two will begin immediately.

Trump added that "the penalty tariffs set for December 15th will not be charged because of the fact that we made the deal" while saying that some tariffs will fall and others will stay the same.

CBOT soybean futures fluctuated in a 10-cent range in the 15 minutes after news broke, but did not rally as the market had already priced in the information.

Rally

All main grains and oilseed futures were higher early on Friday, a day after US officials briefed newswires and national media that a trade deal with China was close.

Corn, wheat, soybeans, and rapeseed across Europe and America all rallied 0.5-2% as reports emerged that the US had agreed to slash existing import tariffs on Chinese goods providing China pledged to buy $50 billion of agricultural goods in 2020.

Earlier in the day, US soybeans and corn rose 1.5%, soyoil was up 1% and rapeseed futures in Paris hit a two-and-a-half-year high of €400/mt.

However, the statement by China and the tweet by Trump lacked specific details and both sides still need to officially sign the deal before becoming law.

China and the US have been involved in a tit-for-tat trade war since April 2018 which has seen the former imposing tariffs on agricultural goods from the US including soybeans, corn, wheat, and meat.

US exports of these goods to China have plunged this year as a result.

Scepticism

Given total exports of corn, pork and soybeans are unlikely to reach the rumoured $50 billion any time soon, large volumes of ethanol, meat and other goods will need to be contracted if such a figure is to be reached, analysts say.

“The figure is possible, but it will be a multi-year, scaled-up approach. You have to think about the products that would be allowed in,” Michael Magdovitz, an analyst at Rabobank, told Agricensus.

Rabobank expects for that figure to be met, imports of cotton, sorghum, barley, DDGS, beef, ethanol, poultry, and wheat will need to be scaled up.

Other analysts are more sceptical of whether such a figure can be reached given total US exports of all those products have ranged from $57-74 billion over the past few years, and that was at a time when many of those commodities were priced higher.

They also say that in order for a $50 billion annual target to be met, China would have to scrap its principle of only buying US goods on based on “market principles”, or in other words when they are the most competitive.

That is something Beijing has said it would not do.

Last month, China lifted its ban on US poultry products a move that is widely seen as opening up its market to additional imports from the US next year.