China is pretty much in control of the global soybean market, and could stay in that position for the rest of 2020.
Following the signing of the Phase 1 trade pact between the United States and China, it was widely expected soybean prices on the Chicago Board of Trade (CBOT) would shoot up — especially since the deal requires China to dramatically increase its agricultural purchases from the U.S. to US$40 billion this year and US$50 billion in 2021. That’s a steep increase from the US$27 billion China spent just prior to the trade war.
However, the CBOT soy complex has since dropped, as this massive influx of orders destined for China hasn’t yet appeared.
One trader, Bill Craddock of Winnipeg, said the Chinese will only begin their U.S. agricultural purchases when they think the time is right.
“Now they can buy beans cheaper in Brazil. It’s harvest there and there’s harvest pressure,” he commented.
Craddock noted China most often makes most of its U.S. purchases in the fall to early winter, which is eight to 10 months away.
That said, there are some who believe the China boon will soon begin in earnest, as in next month. A FarmLead report cited a prediction by Daniels Trading that pegged February as the kickoff month for China’s purchases. FarmLead also reported that Progressive Ag Marketing called for soybean prices to hit as high as US$11 per bushel by Aug. 1.
Meanwhile, CHS Hedging reported that importers in China were told they needed to prioritize U.S. soybeans.
One conundrum China faces has been the reactions from its other trading partners. These countries have demanded assurances that they won’t become collateral damage when China begins to buy more and more from the United States. Vice-Premier Han Zheng reassured them in his speech at the World Economic Forum in Davos.
In turn, growing doubts of China’s ability to spend so much in the U.S. have also driven down soybean prices. Furthermore, there are doubts that U.S. farmers can grow enough to meet that increased demand.
And then there’s the demand itself. African swine fever has cost China at least 40 per cent of its hog population, according to official reports. The actual figure may be higher. Nevertheless, demand for soybeans, canola and other oilseeds has dropped.
What shakes out of Phase 1 — and when or whether soybean prices get this much-talked-about boost — will be very interesting to see.