Black Sea Grain 2019 US Vs China Trade Disputes & Repercussion - - PowerPoint PPT Presentation

Black Sea Grain 2019

US Vs China Trade Disputes

&

Repercussion to Feed Grain Business

Renault Quach guojiahua@donlink.cn Renaultquach2006@163.com Kiev, Ukraine April 11– 12, 2019

US – China Trade Disputes

1

I m pact to Feed Grains Business

2

Tw o I ssues Need for Attention in 2 0 1 9

3

• A. Snapshot of Trade Disputes

US – China Trade Disputes

1

• B. Requests & Position of the America & China
• D. Agri-Trade Dependency of US & China Position in Trade Negotiation
• C. Economic Analysis of China Position in Trade Negotiation

• US invoked 301 Investigation against China in Aug, 2017.
• US declared to increase import duties many times against China

products during Feb – Sept 2018 with China to response with retaliation against the US products during March - August 2018.

• Both countries representatives were holding talks 4 times during the

period without noticeable progress until the meeting of the top men of both countries in Dec 2018 in Argentina.

• Trade war atmosphere was then cooled down. Additional 3 round table

meetings between the 2 countries representatives were held with positive feedback and progress.

• The US withheld further increase of import duties against China

products as from March 2019 and China reciprocated by buying about 13 mln tons of US soybean, 300K US Corn & pork during Dec 2018 – March 2019.

• Talk still underway with expected some sort of agreement between the

US and China but is unlikely to end the trade disputes.

• A. Snapshot of Trade Negotiation Between The US & China

• B. Requests & Position of the US & China

US – China Trade Disputes

1

• A. Update Status of the Disputes
• D. Agri-Trade Dependency of US & China in Trade Negotiation
• C. Economic Analysis of China Position in Trade Negotiation

• 1. N

Narro rrowing Trade D Defic ficit it - Cons nsens nsus w with d h different needs ds

America

• Reduce trade deficit by

US$200 Bln by the end of 2020 by increase in import

• f agricultural & industrial

products. China

• Agree to buy more US

products with pre-condition for US to cancel 301 sanction.

• want to buy more high-tech

and high-quality servicing, not simply agricultural, energy and industrial products.

• Resume of China poultry

import to US.

• B. Requests & Position of the US & China

2.Intelle llectual l Property ty P Protectio ion

America

• Consensus on principle and

strengthen measures over intellectual property protection but wide divergence.

• Request to ensure stopping of

commercial internet invasion, internet pilferage of intellectual property, trading secret and confidential commercial information of US company.

China

• China is in process of

strengthening the measures and agree to study how to modify "Patent Law" to enforce Intellectual Protection.

• Difficulty is how to execute the

promises effectively.

• 3. T

Tarif iff & f & Non-tari riff B Barr rriers rs – Touch t to Reach C Consensus

America

• Lowering import duties on products of

non-critical sectors to level equivalent to the US import duty by Jan 1, 2020.

• Fair and non-discriminative treatment to

US investment & market accessibility of US companies in China, including elimination

• f

foreign investment restriction and foreign share holding limit.

• China stops subsidy and Government

support over those industries of "China Made 2025 Project".

• Cancel "technology in exchange of

market" clause in foreign investment rules in China.

• China currency issue

China

• China agrees to lower import duties on

vehicles, buy huge volume of US products and services with pre-conditions.

• Fair treatment to China enterprises for

investments in US & to facilitate market accessibility of China enterprises over electronic payment devices & services in America.

• Fair treatment to China enterprises over

technological sector and allow US companies and Government departments to buy and use China technological products and services freely.

• Tough areas for compromise as it involves

in and will affect China Strategic Industrial Development Plan.

• 4. O

Other ers

America

• China to withdraw petition to the

WTO against US and promise not to take further action against the US.

• China will not oppose, challenge
• r retaliate the US for measures

having been, being or will be taken to restrict China investment in US or import to US market.

• US will impose extra import duty
• r restriction to China products,

servicing or investment in US if China promises are not honored as determined by the US.

China

• Cancel the 301 sanction
• US promises not to take any

retaliation against China.

• Touch for China to agree on the

2nd & 3rd points.

• 5. E

Enfo forceme ment – Consensus o

• n P

Prin incip iple le b but D Diff ffic icult lty

• n Ex

Executio ion E Evalu luatio ion C Criteria ia

America

• Quarterly meeting to

evaluate and coordinate progress of targets achievement and reformation.

China

• Periodic meeting to

evaluate and coordinate progress of targets achievement and reformation.

• Difficulty is how to

reach criteria to evaluate effective execution of the Agreement .

• C. Econom ic Analysis of China Position in Trade Negotiation

US – China Trade Disputes

1

• A. Update Status of the Disputes
• D. Agri-Trade Dependency of US & China in Negotiation
• B. Requests & Position of the America & China

10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000 90 000

Primary Secondary Tertiary

GDP Ave Growth Rate

Primary Secondary Tertiary 2007-2017 13.6% 16.4% 26.9% 2007-2012 16.6% 18.6% 22.3% 2012-2017 5.7% 7.4% 14.9% Ave Growth of Secondary Industry 2012- 2017 = 7.4%

0% 20% 40% 60% 80% 100% 120% 1997 2002 2007 2012 2017 Primary Secondary Tertiary

Primary Secondary Tertiary 1997 18% 47% 35% 2002 13% 44% 42% 2007 10% 47% 43% 2012 9% 45% 45% 2017 8% 40% 52% 2017 in $Bln 94 478 610

C 1. Secondary Industry is Critical to China Economic Performance

China GDP Growth in 2018 = 6.6%

% Share of China GDP

Source: China Statistic Year Book + Donlink Bln RMB

500 1 000 1 500 2 000 2 500 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Import Export Surplus

Trade Surplus with the World in 2017 = US$ 420 Bln

(1 000) (800) (600) (400) (200) 200 400 600 800 1 000 1 200 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Primary Industrial Servicing

C 2. Major Contributing Sector to China Trade Surplus – Secondary Industry

Trade Surplus contributed by Secondary Industry in 2017 = US$ 881 Bln

Bln $ Bln $ Source: China Statistic Year Book + Donlink

C 3. Trade Surplus contributed by USA in 2017 = 65%

Bln $

50 100 150 200 250 300 350 400 450 500 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Import Export Surplus

Trade Surplus with USA on Up-trend except 2009

Trade Surplus with USA in 2017 = US$ 276 Bln

• 40%
• 20%

0% 20% 40% 60% 80% 100% 120% 140% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US % Share Others

65% of Trade Surplus contributed by USA in 2017

Source: China Statistic Year Book + Donlink

(200) 200 400 600 800 1 000 1 200 1 400 1 600 1 800 Machinery, Audio-equipment & Accessories Miscellaneous Unclassified Products Weaving Materials & Products Metal & Metallic Products Shoes, Hats, Leather Products & accessories Plastic & Rubber Products Glass, Ceremic Products Chemical & Industrial Products Live Animal and Products Medical & Optical Equipment & Products Jewellery, Vasluable Metallic Products Mining Products Vehicles, Aircraft & Transportation Equipment Agricultural Products

C 4. Products Contributing to Trade Surplus with USA - Secondary Industry

Source: China Statistic Year Book + Donlink

Surplus Deficit

C 5. China Manufacturing Sector Negatively Impacted by the Trade Disputes

46 47 48 49 50 51 52 53 54 янв.11 апр.11 июл.11 окт.11 янв.12 апр.12 июл.12 окт.12 янв.13 апр.13 июл.13 окт.13 янв.14 апр.14 июл.14 окт.14 янв.15 апр.15 июл.15 окт.15 янв.16 апр.16 июл.16 окт.16 янв.17 апр.17 июл.17 окт.17 янв.18 апр.18 июл.18 окт.18 янв.19

PMI dropped from 51.9 in May 2018

PMI of Manufacturing Industry

Trade Dispute Noise started to smoke

Source: Wind + Donlink

Share of 2nd Industry Employment in 2017 = 28% or 218 Mln headcounts

C 6. US & China want Agreement out of Different Needs

• From the economic point of view, China needs to reach the trade

agreement with the US to minimize negative impact over the economy

• Nevertheless, it does not imply China will or can accept all the

requests or demand from the America, particularly those sectors relating to the “China Made 2025 Projects”

• Despite of less negative economic impact to the US, the cost to
• Mr. Trump cannot be neglected, particularly after the failure of

meeting with Mr. Kim in Vietnam & votes for Presidency Election.

• The areas of negotiation are very complicated and far beyond the

meaning on papers but expect the agreement can be reached in some ways. Nevertheless, it is not a clear cut and one-shot

• arrangement. It needs on-going discussion and dialogue to

narrow the divergence of requests and targets of both countries.

• C. Economic Analysis of China Position in Trade Negotiation

US – China Trade Disputes

1

• A. Update Status of the Disputes
• D. Agri-Trade Dependency of US & China in Trade Negotiation
• B. Requests & Position of the America & China

Ukraine Substituted US as Major Corn importer to China 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2 000 4 000 6 000 8 000 10 000 12 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 USA Australia Others US % 0% 20% 40% 60% 80% 100% 120% 1 000 2 000 3 000 4 000 5 000 6 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 USA Ukraine Others US %

US Share of Sorghum Import to China >85%

0,0% 0,5% 1,0% 1,5% 2,0% 2,5% 2 000 4 000 6 000 8 000 10 000 12 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 Ukraine French Canada Australia Others US %

US Share of Barley Import to China = almost 0%

D 1. I Impo port rtanc nce of U US Fe Feed Grain n to C Chi hina na – Ins nsigni nificant e except S Sorghu hum

Source: CNGOIC + Donlink Corn Sorghum Barley

0% 10% 20% 30% 40% 50% 60% 70% 80% 1 000 2 000 3 000 4 000 5 000 6 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 USA Kazakhstan Canada Australia Others US %

US Wheat Import served as subplementary to China

Wheat

000 Mts 000 Mts 000 Mts 000 Mts

D 2. I Importa tance of U US F Feed G Grains t to C China - Declin linin ing

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 20 000 40 000 60 000 80 000 100 000 120 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 USA Brazil Argentine Others US %

China has Alternative Origins for Soy Supply

Soybean

99% 99% 99% 100% 100% 100% 100% 100% 100% 100% 1 000 2 000 3 000 4 000 5 000 6 000 7 000 8 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 USA Others US %

US Share of DDGS Import to China = almost 100%

DDGS

0% 10% 20% 30% 40% 50% 60% 70% 5 000 10 000 15 000 20 000 25 000 30 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 Feed Grains Import to China US % of Feed Grain Import

Competition from other Origins plus Trade Tension Leaded to Drop of US Feed Grains Import to China

Corn+Sorghum+Barley US Share in 2018 = 25% Source: CNGOIC + Donlink

000 Mts 000 Mts 000 Mts

D 3. Meat I Impo port rt t to Chi hina na - Expa pand nding ng but but US Sha hare i is I Ins nsigni nificant

500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 2012 2013 2014 2015 2016 2017 2018 2019e

Pork Poultry Beef

Expansion of High Quality Meat Import to China

Ave Import Growth 2012-2018: Pork = + 21.4% Poultry = - 0.6% Beef = + 265.6%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Pork Poultry Beef

US Others 2018 US Meat Import to China = Insignificance

2018 % Share of US Meat Import

Pork Poultry Beef

US 8% 0% 1%

Others 92% 100% 99% Annual（000Mts) 1,006 502 1,039

Source: CNGOIC + Donlink

000 Mts

D 4. I Import Dependency o

• f F

Feed G Grains t to C China - Low

• w

0% 1% 1% 2% 2% 3% 3% 50 000 100 000 150 000 200 000 250 000 300 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 Corn Dom Production Import as % of Dom Prod

Corn Import Dependency = Low

0% 50% 100% 150% 200% 250% 300% 350% 400% 450% 500 1 000 1 500 2 000 2 500 3 000 3 500 2010 2011 2012 2013 2014 2015 2016 2017 2018 Dom Production Import as % of Production 0% 100% 200% 300% 400% 500% 600% 700% 500 1 000 1 500 2 000 2 500 2010 2011 2012 2013 2014 2015 2016 2017 2018 Dom Production Import as % of Production

Barley Import Dependency = High but not Necessity Sorghum Import Dependency = High but not necessity

0% 2% 4% 6% 8% 10% 12% 14% 50 000 100 000 150 000 200 000 250 000 300 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 Corn Sorghum Barley Import as % of Production

Feed Grains Import Dependency = Low

Source: CNGOIC + Donlink

000 Mts 000 Mts 000 Mts 000 Mts

D 5. C Chi hina na Market Signi nificant to U US A Agricultur ure Export rt– So Soy & & So Sorghum

0% 2% 4% 6% 8% 10% 12% 10 000 20 000 30 000 40 000 50 000 60 000 70 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 US Export % Share

China Market for US Corn Export = Insignificance

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2 000 4 000 6 000 8 000 10 000 12 000 1 2 3 4 5 6 7 8 9 US Export % Share to China

China market for US Sorghum Export = Significance

Soybean Corn Sorghum

0% 10% 20% 30% 40% 50% 60% 70% 10 000 20 000 30 000 40 000 50 000 60 000 70 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 US Export % Share to China

US Soy Reliance on China market = High

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 10 000 20 000 30 000 40 000 50 000 60 000 70 000 80 000 2010 2011 2012 2013 2014 2015 2016 2017 2018 Corn Sorghum Barley % Share to China

Corn + Sorghum

% Share of China in US Feed Grains Export = Low

000 Mts 000 Mts 000 Mts 000 Mts

D 6. US Agricultural Products will be Key Factor to Preserve China Interest in Trade Negotiation

• For the China side, importance of US agricultural products to

China is not significant because : a) China has alternative origins to fulfill its needs.; b) % of import volume to domestic production is low;

• For the US side, sorghum and soybean are depending on China

market because: a) Alternative consumption markets are not big enough to replace China import volume; b) Potential growth market for US agricultural products in future;

• China would not cancel the 25% import duties on US agricultural

products unless the US agrees to cancel its additional import duties on China products.

A.Chao A.Chaos & & Uncert Uncertain inty ty to to Import Busine Import Business ss I m pact on Feed Grains Business

2

• B. Drop of Feed Grains Import to China

6,00 6,10 6,20 6,30 6,40 6,50 6,60 6,70 6,80 6,90 7,00

RMB Depreciated by 10.6% during April – Early Nov 2018

RMB Weekly Rate

US$ = RMB Early Nov 2018 – RMB started to appreciate After Trump’s Twitter saying good discussion with Mr. Xi on Phone. Coincidence or Intentional? Mid-April – RMB started to depreciate after US Imposed 25% import duty on China Products Chinese New Year Holidays

A 1. Expectation of RMB Devaluation Leaded to Higher Landed Costs

• f Imported Feed Grains

2018 2019

Source: China Statistic Year Book + Donlink

50 100 150 200 250 300 350 Bzl Santos Fob US Gulf Fob (3 000) (2 500) (2 000) (1 500) (1 000) (500) 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 5 000 янв.15 мар.15 май.15 июл.15 сен.15 ноя.15 янв.16 мар.16 май.16 июл.16 сен.16 ноя.16 янв.17 мар.17 май.17 июл.17 сен.17 ноя.17 янв.18 мар.18 май.18 июл.18 сен.18 ноя.18 янв.19 Margin/ Mt Local Price - Sorghum Import Parity Brazil Soybean US Soybean

Huge Premium of Bzl Soy Vs US Soy with Punitive 25% Import Duty Un-expected Huge Loss because of 178.6% anti-dumping Punitive Duty

Sorghum Margin turns Negative after Punitive 25% Import Duty Sorghum Soybean

A 2. Suffering Vs Cheering by Trade Dispute

Source: Wind + Donlink

Rmb/Mt $/Mt Margin

Huge Loss if wash-out Sorghum ctr during mid-April to mid-May

1 300 1 400 1 500 1 600 1 700 1 800 1 900 2 000 2 100 Corn 1 300 1 400 1 500 1 600 1 700 1 800 1 900 2 000 2 100 Sorghum 1 300 1 400 1 500 1 600 1 700 1 800 1 900 2 000 2 100 Barley 1 300 1 800 2 300 2 800 3 300 3 800 SBM

A 3. Roller Coaster of Domestic Agri Prices by Trade Disputes

Price Surge after anti-dumping investigation Price drop due to dumping of local corn by the Government (3-4 mln tons/week) Price Surge after 25% import duty on US products Price Surge after 25% import duty on US products Price drop after withdrawal of anti-dumping investigation on Sorghum Price Surge after 25% import duty on US products & devaluation of Renminbi Price drop after withdrawal of anti-dumping investigation on Sorghum Withdrawal of anti-dumping investigation on Sorghum => Speculation on Positive Trade Talk Price drop after Trump Twitter claiming good talking with Mr Xi on phone on trade issue

Source: Winds+ Donlink

Rmb/Mt Rmb/Mt Rmb/Mt Rmb/Mt

Sorghum Corn Barley SBM

(600) (400) (200) 200 400 600 800 1 000 500 1 000 1 500 2 000 2 500 3 000 янв.15 апр.15 июл.15 окт.15 янв.16 апр.16 июл.16 окт.16 янв.17 апр.17 июл.17 окт.17 янв.18 апр.18 июл.18 окт.18 Margin/mt Local Price - Corn Import Parity - Corn (500) (400) (300) (200) (100) 100 200 300 400 500 1 000 1 500 2 000 2 500 янв.15 апр.15 июл.15 окт.15 янв.16 апр.16 июл.16 окт.16 янв.17 апр.17 июл.17 окт.17 янв.18 апр.18 июл.18 окт.18 Margin/mt Local Price - Barley Import Parity - Barley

US Corn Margin turns negative after 25% Punitive import tax US Sorghum Import Margin Wide Fluctuation because of Anti-dumping Policy

(400) (200) 200 400 600 800 1 000 500 1 000 1 500 2 000 2 500 3 000 янв.15 апр.15 июл.15 окт.15 янв.16 апр.16 июл.16 окт.16 янв.17 апр.17 июл.17 окт.17 янв.18 апр.18 июл.18 окт.18 Margin/mt Local Price Import Parity

Ukraine Corn without Punitive 25% Import Duty Import Margin = Positive Barley Margin negative because of higher CFR value & RMB Devaluation Import Margin = Negative

A 4. Sudden & Violent Changes of Import Margin by 25% Punitive Import Duty

(3 000) (2 500) (2 000) (1 500) (1 000) (500) 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 5 000 янв.15 апр.15 июл.15 окт.15 янв.16 апр.16 июл.16 окт.16 янв.17 апр.17 июл.17 окт.17 янв.18 апр.18 июл.18 окт.18 Margin/ Mt Local Price - Sorghum Import Parity

Sorghum

Source: Winds+ Donlink

Rmb/Mt Rmb/Mt Rmb/Mt Rmb/Mt

100 200 300 400 500 600 700 800 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Ukraine USA Burma Others 100 200 300 400 500 600 700 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan USA Australia Others 200 400 600 800 1 000 1 200 1 400 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Canada Australia Franch Ukraine Others

US Corn Import tumbled USA Corn out of market if Trade War Un-resolved

US Sorghum Import may be Zero in 2019 if Trade War with USA un-resolved

US Sorghum Import tumbled Australia Barley – Import Rebound in early 2019 B4 Anti-dumping Investigation Result by Nov 2019

US Soybean tumbled after Trade Dispute

B 1. US Agri-Products Import Volume tumbled after Trade Disputes

2 000 4 000 6 000 8 000 10 000 12 000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan USA Brazil Argentine Canada Others Opportunity for Ukraine Barley in 2019 if Trade Dispute un-resolved

To Ensure use of Import quota

Source: CNGOIC + Donlink

K Mts K Mts K Mts K Mts

5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 2012 2013 2014 2015 2016 2017 2018 Corn Sorghum Barley DDGS Wheat

Release of cheap local corn stock + RMB devaluation reduced import feed grains competitiveness

500 1 000 1 500 2 000 2 500 3 000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Corn Sorghum Barley DDGS Wheat

Trade dispute noises aggravated from March Impacted by Trade War Australia Barley Import b4 anti-dumping Investigation Result

Source: CNGOIC + Donlink

B 2. Import Volume tumbled after Trade Dispute

K Mts K Mts

100 150 200 250 300 350 янв.15 мар.15 май.15 июл.15 сен.15 ноя.15 янв.16 мар.16 май.16 июл.16 сен.16 ноя.16 янв.17 мар.17 май.17 июл.17 сен.17 ноя.17 янв.18 мар.18 май.18 июл.18 сен.18 ноя.18 янв.19 Corn Cfr Sorghum Cfr Barley Cfr $ / Mt Opportunity for Ukraine Barley in 2019 if US-China Trade Dispute un-resolved, even with Higher CFR Value China will buy US Sorghum if US-China Trade Dispute Settled. US Corn import max at 4.3 Mln tons in 2019 even price cheaper than Sorghum

B 3. Un-certainty to Ukraine Feed Grain Business in Months Ahead

CHINA – 2019 IMPORT QUOTA

Commodity State-Owned Non State-Owned Total K tons K tons % K tons % Corn 4,320 60% 2,880 40% 7,200 100% Wheat 8,672 90% 964 10% 9,636 100% Rice 2,660 50% 2,660 50% 5,320 100% Cotton 295 33% 599 67% 894 100%

Uncertainty to Ukraine Feed Grains:

• Ukraine feed grains can be sold to China in

big volume in 2019 if trade dispute un- resolved.

• Ukraine feed grains will lose China market

to US sorghum & corn if trade dispute is settled before mid 2019.

• China will buy US Corn max of about 4.3 mln

tons if trade dispute is settled with the US. Otherwise, much less US corn to China.

Source: Wind + Donlink Nearby Position

A.

• A. Africa

African Swine Fever n Swine Fever Tw o I ssues Needed Attention for China Market in 2 0 1 9

3

• B. Corn turns to Deficit in year of 17/18

Sow # Mln Heads

Provinces not infected by African Swine Fever by March 1, 2019:

A 1. Drop in Hog & Sow # in farms with recent Africa Swine Fever Leads to Decline of Compound Feed Production in 2019

Hog # Mln Heads

10 15 20 25 30 35 200 220 240 260 280 300 320 340

янв.18 фев.18 мар.18 апр.18 май.18 июн.18 июл.18 авг.18 сен.18 окт.18 ноя.18 дек.18 янв.19 фев.19

Hogs in Farms(L) Sow in Farms(R )

1st Report of Africa Swine Fever Occurence

Hog & Sow in Farms dropped by 2.4% & 2.1% during Aug 08 – Feb 09 Source: China Statistic Year Book + Donlink

First occurrence in Aug, 2018 in North Eastern part of China Spread over to almost all over China with no vaccine being developed to cure the disease. Serious impact over feed grain consumption as share of hog feed production is about 44% in China Repercussion: More import of pork, , less import of feed grains.

50 100 150 200 250 Hog Layer Poultry Aquatic Others

% Share in 2017: Hog: 44.0% Layer: 13.6% Poultry: 26.9% Aquatic: 9.5%

A 2. Compound feed expected to decline in 2019 because of African Swine Feed but will return expansion in years ahead

Mln Mts

Na Natio ional Feed eed Grew ew @ Ave e 4. 4.9% % during 13/ 13/14 14 – 18/ 18/19 19

Source: CNGOIC + Donlink

• 5%

0% 5% 10% 15% 20% 25% 30% 1997-2002 2002-2007 2007-2012 2012-2017 2018 Hog Poultry Layer Aquatic Others

Av Ave 5 Yrs rs Grow

• wth of
• f Com
• mpou
• und Feed by Type

The 1st st Yr wit ith basic ically lly No Growth in Feed eed Prod

• dn

44,0% 13,6% 26,9% 9,5% 4,3% 1,8% Hog feed Layer feed Poultry feed Aquatic feed Ruminant feed

• thers

China Fe Feed d Produ duction by T Type

Source: CNGOIC + Donlink

A 3. African Swine Fever Leaded to Lower Feed Grains & SBM Consumption in 2019

Ave Growth Exp Growth Feed 2012-2017 2019 Hog 4.7%

• 20%

Poultry 1.2% 4% Layer

• 1.7%

2% Aquatic 1.7% 4% Impacted on Feed Grain & SBM Consumption Feed Grain

• 10.5

mln mts SBM

• 3.2

mln mts

46,4% 16,5% 26,7% 10,4% Pork Poultry Layer Others

% Share of Meat Production in 2017

A 4. Huge China Meat Production despite of Flattening Growth Recent Years

20 40 60 80 100 120 140 Pork Poultry Layer Others

Ave Grow

• wth of
• f Meat P

Prod

• duction
• n:

198 987 7 - 199 997 = 7 = 10. 0.0% 0% 199 998 8 - 200 007 7 = 2.7% 200 008 - 201 017 7 = 2.2% Mln Mts Source: China Feed Association + Donlink

Ave Growth of Meat Production

Pork Poultry Egg Others 1997-2002 2.9% 4.5% 3.9% 4.6% 2002-2007 0.8% 4.2% 2.3% 4.7% 2007-2012 4.7% 4.9% 2.6% 4.1% 2012-2017 0.2% 1.1% 1.5% 0.0% Prod in 2017 (Mln Mts) 53 19 31 12

5 10 15 20 25 2013 2014 2015 2016 2017 Pork Poultry Egg Beef Aquatic

Kg / Capita

A 5. Future Expansion of Meat Consumption depends on Growth of Population, Urbanization & Economic Growth

Source: China Statistic Year Book + Donlink

0% 10% 20% 30% 40% 50% 60% 70% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Urbanization Rate in 2017 = 59% Expected by 2020 = 65%

Urbanization Rate 10 20 30 40 50 60 70 10 000 20 000 30 000 40 000 50 000 60 000 70 000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Higher Meat Consumption in Both Urban & Rural Areas Due to Higher GDP Per Capita or Improvement of Living

GDP/Capita(RMB) Kg/Capita in Urban Area Kg/Capita in Rural Area

RMB Kg 120 122 124 126 128 130 132 134 136 138 140

Population Growth past 10 Years @ ave 0.5% Net addition is about 7.4 million headcounts in 2017 Population Mln 2013-2017 Consumption Growth: Pork : +0.4% Poultry : +5.9% Beef : +6.7%

• A. African Swine Fever

Tw o I ssues Needed Attention for China Market

3

B.

• B. Corn

Corn turns to turns to Deficit Deficit in in year of year of 17/18 17/18

B 1

• 1. C

Chi hina na Cor

• rn – Repercussion t

to f feed g grain import i in Years A Ahead

1 000 2 000 3 000 4 000 5 000 6 000 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e

Corn- Import to become a regular event in years ahead

Import

50 000 100 000 150 000 200 000 250 000 300 000 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e Edible Uses Feed Uses Industrial Uses Domestic Production Total Disappearence (40) (20) 20 40 60 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e

Domestic Corn Turns to Deficit as from 17/18 Changes to Stock

Ave Growth during 2013/2014 – 2018/2019 Total Demand = +5.4% Total Supply = +0.5% Feed Consumption = + 4.9% Industrial Uses = + 9.3%

Feed Grain Import Soaring in Future? Source: CNGOIC + Donlink

Sharp Declining Corn Carrying Stock in Temp Reserve by Auction

Temp Reserve Normal Reserve Commerciale Carrying Stock Corn Stock due to Gov’t Procurement Program to buy corn from farmers at Premium Price 10K Mts

Source: Corn .com

B 2

• 2. S

Sharp Decline of C Corn Stock – Repe perc rcussion t n to f feed d grain i n import i in n Yea ears A Ahea ead

50 100 150 200 250 300 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e

Production

B 3. Corn Production Remained Stagnant in recent Years

Mln Mts 259 mln tons More Planting of Corn being stimulated by Gov’t Supportive policy during 2004 to 2016 Corn Prodn Ave Growth 16/17 – 18/19 = -1.5%

Gov’t Agriculture Policy: Ensure paddy rice & wheat production to secure domestic needs. To boost domestic soy production but maintain corn production. Corn no longer as “food” category. Subsidy to Corn/Soy plantation in 18/19: Corn=Rmb2/Ha; Soy=Rmb21/Ha; Government planting Intention for 2015-2020: Corn - from 38 to 33.3 Mln Ha by 2020 or ave -3.1%; Soy - from 6.5 to 9.3 mln Ha by 2020 or ave +10.7% Corn yield still have room for improvement by supportive policy over land reform, large scale farming , application of technology & use of better hybrid seeds.

88 89 90 91 92 93 94 95 96 97 98 99 20 40 60 80 100 120 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e Planting Area (Mln Acres) Yield (Bu/Acre)

Planting Area Dropped after Gov’t Cancelled Corn Procurement Program in 2016 Source: CNGOIC + Donlink

Corn Surplus (Deficit) by Region Corn Import mainly to South China

Surplus 41 Mln mts

Deficit 6.8 mln mts Deficit 61 mln mts

Surplus 3 Mln mts

2018/2019 Corn Crop （F）

Production Feed Uses Industrial North-Eastern 34.2% 9.3% 29.8% North China 30.2% 25.2% 36.7% South-west 14.3% 13.7% 7.1% South 2.1% 31.7% 5.1% Others 19.3% 20.1% 21.4% 100.0% 100.0% 100.0% National(Mln Mts) 259 195 98

(USDA for 18/19 = 256 mln tons)

Source: CNGOIC + Donlink

Corn Surplus Corn Deficit Corn Major Producing Region

Expected Scenario More Feed Grains Import from North to South

B 4. Widening Corn Deficit in China Will Lead to More Feed Grains Import in Years Ahead

Source: CNGOIC + Donlink

China S Sor

• rghum

m – Local S Supply & & Demand b basically Balanced

Sorghum - fluctuation in Disappearance dictated by changes in feed demand

2 000 4 000 6 000 8 000 10 000 12 000 14 000 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e Edible Uses Feed Uses Industrial Uses Domestic Production Total Disappearence 500 1 000 1 500 2 000 2 500 3 000 3 500 1 600 1 800 2 000 2 200 2 400 2 600 2 800 3 000 3 200 3 400 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e Edible Uses Industrial Uses Seedling & Waste Domestic Production Total Disappearence Domestic Sorghum mainly for Liqor & Ethanol Production

Source: CNGOIC + Donlink

• China domestic sorghum is mainly for

edible distilled spirit and industrial ethanol production (% share is about 72% in 2018).

• US Sorghum is mainly for feed use and

normal price spread to local corn value is about 90-95%.

• Australia Sorghum will have higher value

as it is used for Spirit production in stead

• f feed raw material.

China B Barley – Wide D Deficit b being caused b by E Expansion n needs of Feed a and M Malting I Industries

Fluctuation in Deficit caused by changes in Feed Consumption

2 000 4 000 6 000 8 000 10 000 12 000 2 000 4 000 6 000 8 000 10 000 12 000 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e

Edible Uses Feed Uses Industrial Uses Domestic Production Total Disappearence

1 000 2 000 3 000 4 000 5 000 1 000 2 000 3 000 4 000 5 000 11/12 12/13 13/14 14/15 15/16 16/17 17/18 18/19e Edible Uses Industrial Uses Seedling & Waste Domestic Production Total Disappearence

Domestic Barley Insufficient for Malting Processing with Deficit about 2.5 Mln mts Source: CNGOIC + Donlink

• China domestic Barley production is

mainly for malting production.

• Annual industrial deficit is about 2.5 mln

mts.

• Increase in import volume was due to

high domestic corn price & strong feed uses.

• Price spread is normally about 85% of

domestic corn value.

• A. Sequen
• A. Sequence

ce of Events

• f Events of
• f US Vs.

US Vs. China China Trade Trade Negotia Negotiati tion Appendix

4

• B. 301 Sanction vs China Made 2025 Project

America China Aug 2017 Feb 2018 Feb 27 2018 Mar 9 2018 Invoke 301 Investigation No action

Ignite Anti-dumping Investigation

• ver Iron Sewage Pipe

No action

Charge 48.64-106.09% anti- dumping tax and 17.14-80.97% De-subsidy Tax over Aluminum Foil Products No Action Charge 25% Tax over Steel & 10% tax over Platinum Products No action

1st Round Meeting / Feb 27 – Mar 3 / Washington Discuss Sino-US relationship & Exchange of opinion on Economy & Trade

America China April 17 2018 April 4 2018 April 6 2018

25% duty on list of products involving Aviation, Communication, AI, Mechanical Sectors 25% duty over Soybean, Vehicles, Chemical, Airplane totally worth US$50 Bln Trump claimed to consider charge of additional duty over extra US100 Bln worth of products China claimed to revenge if US charges additional duty Ignite anti-dumping & anti- subsidy Investigation over steel made wheel hub. Forbid Zhong Xin Communication to buy US sensitive technological supplies. Ignite anti-dumping Investigation

• ver US Sorghum and start to

request for 178.6% deposit of anti-dumping tax Declared to charge additional tax

• n US$50 Bln worth of Products

Mar 22 2018

15% on Fruit & 25% on Pork with total value worth US$3 Bln

America China

Cancel sales forbiddance Order over Zhong Xin Commincation

May 22 2018

Terminate anti-dumping investigation over Sorghum

2nd Round Meeting / May 3-4 / Beijing Issues: Expanding export to China, Bilateral servicing trade, Investment, Intellectual Property Protection, Tariff and non-tariff Practice. Outcome: Wide divergence over some issues but agreed to set up working mechanism for more discussion. 3rd Round Meeting / May 15 -19 / Washington Issue: Follow up and discuss the unsettling issues Outcome: Further discussion & exchange of opinion

Claim to charge 25% tax over technological products with worth US$50 Bln

May 29 2018

No Action

America China July 10 2018 June 15 2018 July 6 2018

Increase taxable products in the US$50 Bln taxing package Start to charge 25% duty over US$34 Bln worth of technological products Charge 25% duty over same amount of US products Claim to charge 10% over additional US$200 Bln worth of products No action No action

4th Round Meeting / June 2-3/Beijing

Issue : Follow up & Discuss the unsettled issues Outcome: Progress on Agriculture & Energy sectors. Agreed to increase import from US with pre-condition of cooperation but not threat of trade war

America China Sept 24 2018 Aug 8 2018 Aug 23 2018 Dec 1 2018

Declare to charge the 2nd batch of technological products as from Aug 23 with value US$16 Bln No action Start to Charge 25% tax on US$16 Bln technological products Consensus between Xi & Trump Talk to solve the dispute Temporize tax increase on US$200 Bln products till 3/1 after Xi – Trump meeting in Argentina Consensus between Xi & Trump Solve the dispute by talk Promise to buy US 5 mln mts Soybean Start to charge 10% tax on US$200 Bln products & increase to 25% tax on Jan 1, 2019 No action Claim to increase tax rate from 10% to 25%

Aug 2 2018

Issue list of additional products worth of 60 Bln to be taxed as retaliation over US 200 Bln taxation No action

America China Mar 5 2019

Postpone tax increase over the 200 Bln until further notice Buy Soybean with aggregate total

• f 10 mln tons as a good gesture

to US deferral of import duty

5th Round Meeting / Jan 30-31 / Washington Issues : Discuss trade balancing, technology transfer, Intellectual Property Protection, non-tariff barrier, servicing, agriculture, enforcement mechanism & concern issues by China side. Outcome: China promised to buy more agricultural commodities and narrow divergence on some issues. 6th Round Meeting / Feb 14-15 /Beijing Issues : Good exchange of communication over trade balancing, technology transfer, Intellectual Property Protection, Non-tariff barrier, Servicing, Agriculture, enforcement mechanism & concern issues by China team. Outcome: Reach consensus on major issues.

America China

The USTR announced to delete certain China products from 301 sanction ie cancel the 25% import duties

March 20 2019

9th Round Meeting / March 28 -29 / Beijing

Buy additional US soybean (3 Mln tons)

Source: News+ Donlink

301 Rules

* Refer to Number 301 of the 1974 Trade Rules of the USA; * The 301 Rules authorizes the US Trade Representative to ignite investigation against any country over “unreasonable or un-justice trading practice” and based on the result of the investigation, the US Trade Representative can recommend the President of the USA to invoke unilateral sanction including removal of trade benefits and / or imposition of penalized custom duties.

China Made 2025 Project

• First proposed by the State Council of China in May 2015 and it was related to

China Industrial Development Strategy till 2050. * 3 stages of development with targets of:

• By 2025, China is to become one of powerful industrial countries in the world;
• By 2035, China is to achieve technological standards among the powerful

industrial countries in the world;

• By 2050, China is to achieve technological frontier among the powerful

industrial countries in the world.

B.

• B. 301 Sanction

301 Sanction vs China Made vs China Made 2025 Project 2025 Project

Source: News+ Donlink

THANKS