Futures prices on soybeans were up 15 cents as trading resumed Sunday evening following the cooling of the tariff war between the U.S. and China. But how long will that rally last?
President Donald Trump, in a meeting with his Chinese counterpart Saturday, agreed to put the brakes on sharp tariff increases that were scheduled to go into effect Jan. 1 that would have raised tariffs from 10% to 25% on more than $200 billion worth of goods. The tariff freeze is designed to give a 90-day window to work out larger trade issues between the two nations, most notably protections for intellectual property.
The Chinese statement following the meeting, however, did not mention that 90-day window, and that raises concerns for Joe Vaclavik of Standard Grain.
Vaclavik also noted that while the White House statement indicated that the Chinese would start buying “significant amounts” of U.S. agricultural products “immediately,” the Chinese statement was not as enthusiastic.
“My big question mark is will China come in and buy U.S. soybeans despite the fact that a 25% tariff remains in place, because they still buy their beans from Brazil,” Vaclavik said.
And he noted that timing may be a big concern.
“Remember that we passed through the big export window for U.S. soybeans,” Vaclavik noted. “The best months for U.S. exporters have really past: September, October, November - that's when we do the majority of our business. Could we sell some beans to China in the couple next couple of months prior to Brazilian harvest? I suppose that’s certainly a possibility.”
In the short term, soybeans and other commodities are expected to bounce on the positive trade news.
“I would have to call the markets about nine higher on corn, 35 cents higher on beans, and I'm calling wheat 18 cents higher,” predicted Bill Biederman of Allendale.
But longer term, there remain a number of fundamental problems for soybeans in particular.
“We still got a huge U.S. bean crop. We've got record supplies. We're not doing the demand or the export business that we need to do in order to meet USDA projections at this point,” Vaclavik said. “So this is a step in the right direction. But this is not a one meeting fix to the fundamental problems that we have in our grain markets.”