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China may buy less American farm products if U.S. issues severe HK response - sources

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05/29/2020 | 08:11am EDT
FILE PHOTO: Corn is harvested from a field on Hodgen Farm in Roachdale

By Hallie Gu and Keith Zhai

China may reduce its imports of agricultural products from the United States if Washington issues a severe response to Beijing's push to impose national security laws on Hong Kong, three sources said.

China has pressed ahead with national security legislation for Hong Kong, raising fears over the future of the financial hub.

U.S. President Donald Trump has vowed a tough response, and will hold a news conference on China later on Friday.

Sources said that if Trump announces tough sanctions on Beijing, that could derail the trade deal the two countries have worked on for almost two years, as any worsening in relations could deter importers from buying U.S. farm goods.

If the U.S. countermeasures are really severe, China probably will reduce its buying of U.S. products, said one source familiar with the government plan.

If the measures are mild, trade may not be affected, the source added.

Under their initial Phase One trade deal reached in January, China committed to buying a further $32 billion (£26.02 billion) worth of U.S. agriculture products over two years, above a baseline based on 2017 figures.

Soybeans were the top U.S. farm product shipped to China in 2017, with cargoes worth $12 billion, and traders have said they expected China to step up purchases of U.S. cargoes of the oilseed.

"Commercial buyers are still inquiring about U.S. new (soybean) crop, making preparations to import American beans," said a source with a major trading house.

"But this could change because of any political hiccups... Commercial buyers are very nervous at the moment," the source said.

China has already bought some U.S. soybeans and corn in several rounds of purchases this year, but the typical peak period for Chinese purchases of U.S. crops comes after harvest in the fall. Those purchases may now be in doubt.

"The tensions between the U.S. and China mean private companies are less inclined to buy American products," said Darin Friedrichs, Senior Asia Commodity Analyst at broker INTL FCStone.

"U.S. soybeans don't just have to be price competitive, they have to be price competitive accounting for the big U.S.-China political risk," Friedrichs said.

Crush margins for American shipments after September are increasingly economical for crushers compared with rival supplier Brazil as he U.S. harvest approaches, traders said.

Whether China will continue to buy U.S. beans probably "depends on U.S. reaction to HK," said a trader with a state owned firm.

(Reporting by Hallie Gu in Beijing and Keith Zhai in Singapore)

Stocks mentioned in the article
ChangeLast1st jan.
CHANGE INC. -2.72% 7880 End-of-day quote.170.98%
CORN FUTURES (C) - CBR (FLOOR)/C1 0.22% 334.75 End-of-day quote.-13.86%
EURO / BRAZILIAN REAL (EUR/BRL) -0.03% 6.1164 Delayed Quote.36.04%
HUB CO., LTD. -5.40% 596 End-of-day quote.-42.80%
SOYBEAN MEAL FUTURES (ZM) - CBE (ELECTRONIC)/C1 0.21% 283.7 End-of-day quote.-5.60%
SOYBEAN OIL FUTURES (ZL) - CBE (ELECTRONIC)/C1 1.82% 28.48 End-of-day quote.-18.50%
STONEX GROUP INC. 2.44% 56.78 Delayed Quote.16.28%
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