China may have to resume U.S. soybean purchases in weeks: Oil World

August 14, 2018

Extended editor’s commentary: Here is some detailed context regarding article below reporting on China likely resuming purchases of US soybeans.

Soybeans prices should not have tanked because soybeans are a fungible global commodity that does not care whether it goes to China or Argentina or EU. There is drought in EU and Argentina and they are buying US soybeans for the first time in many years. But the soybean market did tank. Psychology overrode fundamentals in this fragile market dominated by a few big global grain buyers. Unlike the stock market which was resilient in returning to the fundamentals of corporate profits. 

Corn prices should not have tanked for similar reasons. Plus, we don’t sell much corn to China. But corn prices did tank. Probably causes: Sympathetic market psychology to soybean market, a fragile market, not disciplined by fundamentals. Despite the fact that global corn stocks are not high.

But China cannot avoid buying US soybeans because there are not enough supplies in the world to allow them to not buy US soybeans. (as per article). This has always been true, but did not govern market movements. The fact of China’s inability to avoid buying from us is hitting the more mainstream press now.

Soy and corn prices are trending up.  Regaining about 20-30% of losses.

There is a high likelihood that China will resume soybean purchases… and coupled with lower global soybean supply will result in  soybean prices popping back up.  There is a pretty good likelihood that the fact of non-abundant corn stocks - plus sympathetic tracking of soy markets - will cause corn to go quite a bit higher this fall. It could even be that there is a psychological overreaction on the upside, but can’t fully count on it given that global grain companies will try to push down.

That would be good news for row crop farmers. But bad news for cattle and dairy producers - corn is their major feed input - unless cattle and dairy prices climb out of the gutter.

It would be good to have a USDA plan to prevent global oversupply from Brazil, Argentina and others to avoid periodically causing a glut and a price crisis in the future. Their national strategies produce oversupply just as China does in steel and other product markets.

HAMBURG (Reuters) - China may have to start buying U.S. soybeans again in coming weeks despite the trade war between the two countries as other regions cannot supply enough soybeans to meet China’s needs, Hamburg-based oilseeds analysts Oil World said on Tuesday.

[August 7, 2018 | Reuters]

In July, China imposed import tariffs on a list of U.S. goods, including soybeans, as part of the trade dispute with the United States. China is the world’s largest soybean importer and has been seeking alternative supplies, especially in South America, where supplies available for export are down.

“China has to resume purchases of U.S. soybeans,” Oil World said in its latest newsletter. “The South American supply shortage will make it necessary for China, in our opinion, to import 15 million tonnes of U.S. soybeans in October 2018/March 2019, even if the current trade war is not resolved.”

Chinese purchases of U.S. soybeans could re-start “in coming weeks,” Oil World added.

Soybeans, crushed to make cooking oil and the protein-rich animal feed ingredient soymeal, were the biggest U.S. agriculture export to China last year at a value of $12.3 billion, according to the U.S. Department of Agriculture.

Oil World said with South American export supplies expected to be down sizeably from a year earlier in the next six months, China will face very tight domestic soybean supplies unless it resumes large-scale purchases of U.S. soybeans.

“There is a risk that China will have to cut back its livestock production, implying higher prices on the domestic market,” it said.

China is also likely to raise imports of processed soymeal as an alternative to soybeans for crushing, it said. Ironically this could mean China could still end up with U.S. soybeans that have been processed in Argentina.

“The biggest increase is likely to be seen in soymeal exports from Argentina to China,” it said. “If China begins purchasing Argentine soymeal, a lack of soybean supplies in Argentina is likely to raise Argentine imports of U.S. soybeans.”

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