China has announced it will cut some of its export subsidies that the U.S. deemed unfair after an agreement signed last week.
The new policy is causing China to ditch its guaranteed corn price, which for the 2015 crop, was equivalent to $7.80 per bu.
“Chinese subsidies … were distorting the global market and disadvantaging American exporters,” according to U.S. trade representative Mike Froman.
China’s crops have proved quite disruptive to the markets in 2016. For example, signs of a stabilizing Chinese economy helped fuel a soybean rally and push the commodity to the highest levels since last August.
“The global market reaction is a vote of confidence in the China economy and commodities in general,” Bill Nelson, senior economist for St. Louis-based Doane Advisory Services Co., said in a telephone interview. “The grain markets are looking at an improving agricultural demand story in China.”
Cotton futures, meantime, tumbled after China announced it will auction 2 million metric tons of cotton between May and August. Analysts say China depleting its inventories will be a long-term positive, although short-term, prices have slid downward more than 7% in part because of the country’s large inventories.