China Halts U.S. Agriculture Purchases as Trade War Heats Up

(Bloomberg) --

China is stepping away from further U.S. farm imports and said it doesn't rule out more tariffs after President Donald Trump ratcheted up tensions with its biggest agricultural trading partner last week.

The Chinese government has asked its state-owned enterprises to suspend purchases of U.S. agricultural products, people familiar with the situation said. Also, privately run Chinese crushers that had received retaliatory-tariff waivers on American soybeans from Beijing have stopped buying the commodity due to uncertainty over trade relations, other people said.

Chinese buyers have turned to South American soybeans and the Asian nation said it doesn't rule out for now taxing American agricultural goods that were traded after Aug. 3, the Commerce Ministry said in a statement on its website. The ministry also confirmed relevant Chinese firms have stopped purchasing American agricultural goods.

President Trump on Thursday proposed adding 10% tariffs on another $300 billion in imports from Sept. 1, marking an abrupt escalation of the trade war between the world's largest economies shortly after the two sides restarted talks. Bureaucrats in Beijing were stunned by Trump's announcement, according to Chinese officials who've been involved in the trade talks, and Beijing has pledged to respond if the U.S. insists on adding the extra tariffs.

China's state-run agricultural firms have now stopped buying American farm goods, and are waiting to see how talks progress, the people said, declining to be identified as they're not authorized to speak to the media. Meanwhile, the private crushers haven't received notices from the government on any policy change since the U.S. escalated tensions last Thursday, people said.

“The leverage that China has is its large agricultural purchases,” Darin Friedrichs, a senior analyst at INTL FCStone's Asia commodities division, said in an interview on Bloomberg TV. “This does affect U.S. farmers and the rural U.S. voting base that's normally in support of Donald Trump. If they hit back before the election, that's the obvious way to retaliate.”

Chinese buyers are seeking to buy Brazilian and Argentine soybeans after trade talks soured, people familiar with the matter said Monday. They were seeking Brazilian cargoes mostly for September and Argentine for August and September, the people said. Inquiries by the world's top soybean buyer Friday sent the premium for soy at Brazilian ports surging.

Trump has repeatedly complained that China hasn't made the “large quantities” of agricultural purchases that he claims President Xi Jinping promised when they met in Osaka at the G-20 summit.

Those accusations are “untrue” as Chinese companies have bought U.S. farm products, including soybeans, Cong Liang, Secretary General of the National Development and Reform Commission, said in an interview with state media CCTV. Some deals haven't been completed because the prices are not competitive, he said.

‘Very Nervous'

Soybeans for November delivery slumped as much as 1.6% on Monday before recovering to be little changed at 1:20 p.m. in Chicago. Corn tracked a similar path. Hog futures, which plunged 6.4% earlier today, were up 2.6%. Earlier, soybean-meal prices in China and rapeseed meal futures advanced on expectations for tighter supplies. Shares in crop trader Bunge Ltd. fell 3.1% while rival Archer-Daniels-Midland Co., which has been more positive on a resolution to the trade war, slumped 6.2%.

China had already drastically cut back on U.S. purchases, with soybean imports sinking to the lowest in a decade during the first half. In a show of goodwill, the Asian nation had recently given the go-ahead for five private companies to buy as much as 3 million tons of U.S. soybeans without paying retaliatory tariffs. Meanwhile, state-owned firms earlier pledged to buy about 14 million tons in the current marketing year, of which 4 million tons have not yet been shipped.

The companies that had received the waivers were state-owned Jiusan Group, as well as privately run Shandong Bohi Industry Co. and China Sea (Zhonghai) Grain and Oil Industry Co., Bloomberg reported last month. Yihai Kerry Group, a Chinese subsidiary of Singapore-based Wilmar International Ltd., and Hopefull Grain & Oil Group are also among the firms.

“I would be very nervous if I was a Chinese company trying to buy produce right now,” Friedrichs said. “We'll see a lot of private importers backing away from U.S. products as well.”

To contact Bloomberg News staff for this story: Steven Yang in Beijing at kyang74@bloomberg.net;Isis Almeida in Chicago at ialmeida3@bloomberg.net;Niu Shuping in Beijing at nshuping@bloomberg.net;Alfred Cang in Singapore at acang@bloomberg.net

To contact the editors responsible for this story: Anna Kitanaka at akitanaka@bloomberg.net, James Poole

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With assistance from Bloomberg