White House Attempting to Confirm Chinese Purchases of Soybeans

AgriBusiness 12-07
China U.S. Soybean Trade ( FJM )

Optimism is growing in the trade truce with China as Pro Farmer reports Friday trade chatter suggests China is buying about 5 million metric tons of soybeans for state-run companies.

"The rumor is that they're going to probably have some purchases made by Monday but for sure by next Friday," says analyst Bill Biedermann with Allendale Inc. "My own numbers show that they have to buy at least 8 million tons up to about 11 (million tons) in order to fill the hole that they have left."

According to Pro Farmer Washington Analyst Jim Wiesemeyer, the White House is working to confirm that soybean purchases are being made by China.

“A top official involved in the U.S. – China talks was calling some U.S. grain companies to ask if China was purchasing U.S. grain,” Wiesemeyer says. “Our sources said they’re 100% sure that was ongoing this morning. So if that’s the case, they fully expect out of the White House that China is very soon going to execute some purchases.”

Markets rebounded earlier in the week following the dinner meeting between Presidents Donald Trump and Xi Jinping of China. However, many traders were quick to point out that regardless of a truce, fundamentally the U.S. still has a massive carry-over in soybeans. USDA put it at roughly 900 million bushels in its November Crop Production report.

"We've got a huge supply which will limit our ability to go too high," says Biedermann. "I think we can get back to $10 but to go to $11 or $12, it's not going to happen."

However, Biedermann believes resuming trade with China will help.

"I think that carry-over could come down towards 650 (million bushels)," says Biedermann.

Garrett Toay with AgTraderTalk agrees. He spoke with AgDay-TV host Clinton Griffiths about the impact of a trade truce.

"The most bullish thing right now is a potential trade deal," says Toay. "It's a selling opportunity and potentially the selling opportunity of a lifetime as long as we don't have a South American weather event."

He says carry-over of soybeans is large and it's an issue.

"But, you know, if we make some progress on the trade side that at least prevents the stock situation from getting worse," says Toay. "Things are starting to improve."

Toay is looking at sales figures from last week from the U.S. Soybean Export Council. It reports net sales for soybeans were 890,000 metric tons. That's up 42% from the previous week and nearly 85% higher than the previous 4-week average.

"We've done more export business the last two weeks than we did the prior four weeks before that," says Toay. "But, at the same time over the first 10 weeks of the marketing year we've done less export business in beans than we did in 2012."

Biedermann says while there's still no concrete evidence China is buying, he believes they're already having an impact.

"We saw (buying) from Argentina, Indonesia, Spain, Netherlands, even Egypt," says Biedermann. "We're getting some non-normal buyers taking advantage of the discount that we have because once (China does) this discount will be gone in a heartbeat."

Many traders point to the quickly approaching Brazilian harvest. That typically signals the end of the U.S. export window and China's shift to South American production.

"I think that's a bit of a misnomer," says Toay. "Regardless what the traditional marketing windows are, if we do get a trade deal, they can be thrown out the window."

Toay says ultimately it comes down to who wants to sell soybeans the cheapest and the freight spreads.

"If we have beans available versus South American supplies, we can change the trade pattern," says Toay. "We could sell some beans to China in the June, July, August time period and I don't necessarily think the window is narrowing."

Biedermann isn't so sure China can be coaxed out of their typical buying habits but there's still time for U.S. sales to happen.

"Typically, from March on they're going to be buying from South America," says Biedermann. "There is a window here that we could fill very easily."

Regardless, Biedermann says the fact that the two countries are talking and working toward some type of an agreement it's not negative for U.S. ag.

"I'm encouraged by the demand we saw from outside buyers and I'm encouraged by what I'm hearing in the cash markets (including) rumors about Chinese buyers," says Biedermann. "This is a big deal."