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China Suspends Domestic Ethanol Policy

US exported about 20% of its ethanol to China in 2016

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China Suspends Domestic Ethanol Policy

China has suspended its plan to implement a nationwide gasoline blend containing 10% ethanol.

In September 2017, China announced that by 2020 the national gasoline supply would contain 10% ethanol.

China’s drive toward E-10 was partly designed to help reduce a massive corn surplus.

The US exported about 20% of its ethanol to China in 2016.

Beijing raised import tariffs on ethanol in 2017 to 30%. The US/Chinese trade war added another 40% in tariffs.

Many believe that the Phase 1 trade deal between the US/China will contain language that could help US ethanol exports.

FBN’s Take On What It Means: At FBN, we believe that China’s decision to abandon plans for a national 10% ethanol blend represents a neutral to negative development for the U.S. farmer. Since 2017, US exports of ethanol to China have not been material. While the Phase-1 trade agreement may contain favorable language for US ethanol exports we believe that this recent development reduces the probability of a material US ethanol export program which means that US corn will have to find other channels for demand.

China Works to Protect Domestic Farmers

China will not increase its annual low tariff import quotas for corn, wheat and rice to accommodate increased purchases of U.S. farm goods.

China is working to protect its farmers at a time when the government is under pressure to buy billions of dollars of U.S. agricultural goods.

China’s grain imports have been well below quota levels in recent years.

Speculation has been that Beijing could increase annual quotas on the amount of wheat, corn and rice that can be imported at a tariff rate of 1%.

China's annual quotas are 9.64 million tonnes (MT) for wheat, 7.2 MT for corn and 5.32 MT for rice.

Soybeans are not covered by the grain quotas.

FBN’s Take On What It Means: At FBN, we believe that China’s protecting their domestic farmers by not adjusting the import tariff quotas can be a negative for US agricultural exports. Given China’s lack of willingness to adjust the tariff rates for corn and wheat, we believe that the details of the Phase-1 trade agreement as they pertain to US agricultural exports become more important.

The risk of trading futures, hedging, and speculating can be substantial. FBN BR LLC (NFA ID: 0508695)

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