U.S. soy trade mission to China reveals relief, uncertainty after trade war detente

By Karl Plume

CHICAGO, Jan 21 (Reuters) - As dozens of U.S. and Chinese officials gathered at the White House for last week's Phase 1 trade agreement signing, a much smaller group of U.S. soy industry leaders watched the event on television from Myanmar's Yangon International Airport before departing for Shanghai.

The pact signed by U.S. President Donald Trump and China's Vice Premier Liu He was aimed at defusing a nearly two-year trade dispute between the world's top two economies that has rattled markets, curbed American farm income and threatened the global economy.

The soy delegation, including U.S. Soybean Export Council Chief Executive Jim Sutter and U.S. farmers, visited China for an annual gathering of soy exporters and Chinese buyers normally held ahead of the country's Lunar New Year celebrations. They visited Myanmar on another market development mission.

The trip was more cordial than any of the handful of U.S. soy market development missions held in China since the bruising trade war began in 2018, Sutter said in an interview. The trade war has marked the most difficult period of the 38-year soy trading relationship.

But despite the trade deal, which included a vow by Beijing to nearly double U.S. farm product imports, uncertainty prevailed among soybean users in the world's top soy importing nation, he said.

"We have this Phase 1 agreement to close this chapter on the trade war. But in terms of how this is going to work, there are still lots of questions," he said.

Chinese commercial soy importers told Sutter they have not been ordered by the government to prioritize U.S. soy purchases or been offered any economic incentive to do so. None indicated they were aware of any accelerated government soybean stockpiling push, Sutter said.

"They are all wondering how this is going to unfold," he said.

Chinese purchases of U.S. soybeans, the most valuable U.S. agricultural export product, plunged to a 16-year low during the trade war as Beijing slapped steep tariffs on U.S. shipments and importers relied heavily on South American soy.

Beijing has, at times, offered tariff waivers to importers, but has not lifted its 25% retaliatory duties.

Soybeans are expected to be key to reaching the trade deal's target of an additional $12.5 billion worth of agricultural goods imports in 2020 and at least $19.5 billion over the 2017 baseline level of $24 billion next year.

Before the trade war, soybeans made up roughly half of the value of U.S. agricultural exports to China, U.S. Department of Agriculture (USDA) data showed.

If the mix of products were to remain similar, China's U.S. soybean imports under the deal's first-year commitments would need to exceed 43 million tonnes at today's prices, according to a Reuters analysis. That would easily top the record 36 million tonnes exported to China in 2016.

Whether that is achievable is unclear, particularly because soybeans are currently cheaper in rival supplier Brazil, where farmers are preparing to harvest a likely record-large crop.

"If you want to see a lot of U.S. purchases in the short run, this isn't the best timing for this new agreement. We're on the cusp of the South American season," Sutter said, adding that purchases are more likely to ramp up later in the year after exportable supplies in South American dwindle.

Reduced livestock feed demand in China is another obstacle as African swine fever has decimated its hog herd, the world's largest.

"The agreement is that they are going to purchase a large amount of U.S. agricultural products. They're going to have to figure out how they do that," Sutter said.

"There's a lot of good will. There's a lot of optimism that we must be in a better place." (Reporting by Karl Plume in Chicago; Editing by Caroline Stauffer and Bernadette Baum)

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