"International trade for agri-products does not only mean trading, it also includes other sections in the chain, such as production, logistics, storage, processing and consumption. It will take a long time for the two countries, as well as the world market, to reestablish a balance to facilitate the deal," he said.

Wang said increasing imports of soybeans to 50% above 2017 levels, like the deal calls for, will be difficult. China imported 32.9 million metric tons (mmt), or 1.2 billion bushels, of soybeans that year.

"Given the same price, this means China will need to buy close to 49 mmt (1.8 bb) of soybean," he said. "There may not be a market in China for this amount."

China has already purchased 11.7 mmt of new-crop soybeans from the U.S. this year. About 10 mmt of that shipped before the two countries signed the deal, with only 1.75 mmt waiting to be loaded on ships. Wang said the trade doesn't know whether that will count toward overall purchases.

"We already booked our positions all the way to June 2020 from Brazil," a purchasing manager of a crushing company, who could not disclose his name, told DTN. "There is not a lot of room for U.S. beans in the following months. Buying more old-crop beans from the U.S. will mean importing U.S. beans in the Brazilian market season. This will flood the China market."

He said all of the country's grain buyers, including state-owned companies COFCO and SinoGrain, are waiting for detailed regulations on how to buy soybeans since the 25% import tariff remains in place under the terms of the deal.

Since China won't be lowering the tariff, the government will have to create a mechanism to offset the tariff payment, or else U.S. soybeans won't be competitive.

Tariff rate quotas, which allow a certain amount of a commodity to be imported at a lower tariff rate, will also factor into China's purchasing decisions.

"China can buy other products with no tariff quotas, such as DDGs and sorghum, but the country still has tariff quotas on wheat (9.6 mmt), corn (7.2 mmt), rice (5.3 mmt) and cotton (0.89 mmt)," Wang said. "It may be easier for companies to buy more DDGs and sorghum."

Han Jun, vice minister of agriculture, said earlier this month that China will not increase its annual tariff quotas to accommodate the U.S.-China deal. Han was a member of the Chinese negotiating team.

It will be very difficult for U.S. to export ag products to be price competitive in China without a quota. For example, corn's import tariff is 1% within the quota, but once that quota is reached, it jumps to 65%.

Pork and beef import will be possible, depending on the market demand. China's pork production declined 21.3% last year to 42.5 mmt, Wang said.

"The Chinese government may need some time to figure out how to allocate buying powers to the market, given the different ownerships of the companies in the country and the national holidays this week and next week, as Chinese people are celebrating the traditional Chinese New Year," Wang said.

He added that state-owned companies, such as COFCO and SinoGrain, will buy according to the government orders since the country will pay it. But for foreign companies and private companies, profit is still the first concern.

(KD/AG)

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