China is preparing to buy more than 30 million tonnes of crops for state stockpiles to help protect itself from supply chain disruptions caused by the COVID-19 pandemic and make good on pledges to buy more US crops, three sources said.
China plans to add about 10 million tonnes of soybeans, 20 million tonnes of corn and 1 million tonnes of cotton to its state reserves, said two of the sources, who were briefed on the government plan.
The bulk of the crops would be imports, mainly from the US, as China works to fulfil its commitment under a “phase one” trade deal signed in January, the sources said, declining to be named because of the sensitivity of the matter.
Photo: Reuters
“The main message from [Beijing] is to secure people’s livelihoods. It is a good time to build up reserves, especially when prices of the goods are at quite low levels,” one of the sources said.
Beijing also plans to add 1 million tonnes of sugar and 2 million tonnes of soybean oil to the reserves, the sources said.
It was not clear from where those commodities would be sourced.
China Grain Reserves Corp (中國儲蓄糧管理總公司) did not immediately respond to an e-mail seeking comment.
The timing of the purchases could be favorable for Beijing, as the price of Chinese soybean and corn futures are roughly double those in the US, where large inventory overhangs and muted demand amid the pandemic have pressured crop values.
One of the sources said that it was unclear when the buying would take place, adding that he timing would depend on how the market evolves.
“This is a triple-win. Stockpiles can be released to contain price hikes when needed, it helps [Beijing] fulfil the Sino-US trade deal and prices are good,” one of the sources said.
Discounting shipping costs, the total value of the corn and soybeans supplies from the US would be about US$6.25 billion, Refinitiv data showed.
Lockdowns to contain the outbreak have battered the global economy and roiled global supply chains, including agriculture.
China agreed to step up its purchases of US agricultural goods, including US$12.5 billion more than the corresponding 2017 baseline of US$24 billion this year and US$19.5 billion more than the baseline next year, as part of the trade pact.
Chinese buyers have bought US beans, corn and wheat this year after price falls made them good value.
China’s farm imports from the US in the first quarter of this year totaled US$5.05 billion.
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