Soybean Prices Rally as China Ramps Up Buying

Date: Thursday, June 25, 2020
Source: The Wall Street Journal

A streak of big soybean purchases by Chinese buyers has helped make the crop profitable again for U.S. farmers

China has ramped up its purchases of U.S. soybeans recently, sparking a rebound in prices and making the crop profitable again for U.S. farmers after the coronavirus pandemic had slammed demand.

Since falling to their lowest levels in nearly a year in April, soybean futures on the Chicago Board of Trade have risen 6.4%. Most-active soybean futures closed at $8.71 a bushel on Wednesday—topping the break-even price of roughly $8.50 a bushel needed by farmers for their soybean crops to be profitable. Some traders believe the current momentum could push soybean prices to over $10 a bushel, which would be their highest level in over a year.

The main factor pushing prices up is the recent swing in Chinese purchasing of U.S. exports after the two countries struck a trade deal and currency economics became more favorable. In the past month alone, China has purchased nearly 5 million metric tons of American soybeans, according to data from the U.S. Department of Agriculture.

While China can cancel these purchases—over 2.85 million tons aren’t scheduled to be delivered until later this year—Chinese buying makes up roughly 56% of all new soybean export sales in the past month. By comparison, Chinese buying made up only 27% of U.S. soybean export sales in 2020 through May. 

That momentum is expected to continue. Speaking at a virtual conference held by the U.S. Soybean Export Council this week, USDA Under Secretary Ted McKinney said the department expects China to follow through in buying $36.5 billion-worth of U.S. farm goods in 2020—as promised in the Phase One trade agreement signed in January.

“China’s soybean purchases over the past few weeks have been a positive sign that China continues to implement the historic trade agreement with the United States,” Under Secretary McKinney told The Wall Street Journal. “We expect China’s appetite for agricultural imports to remain robust.”

Still, doubts about the deal remain. White House trade adviser Peter Navarro roiled markets after seemingly calling China’s fulfillment of the trade agreement “over” in a Monday interview on Fox News. He quickly clarified the comments as “taken wildly out of context,” but traders are skittish about suggestions of the deal being derailed.

Global events like the coronavirus pandemic stifled China’s buying and stoked tensions between the two nations following the deal’s signing. But it isn’t necessarily unusual for China to hold off on buying U.S. soybeans in the spring, said Rich Nelson, chief strategist with McHenry, Ill.-based grain brokerage Allendale Inc.

Usually, Brazil is the main seller in the export market during the spring, and it was an especially aggressive seller this year. Brazilian farmers have sold 87.5% of their record 124 million metric ton 2019-20 soybean crop as of June 5, a record pace according to agricultural consulting firm Datagro. The previous record was 76.8%, in 2016, and the five-year average for the date is 69.5%, the group said.

But Brazil’s currency has strengthened by nearly 5% in the past month. The U.S. dollar has weakened by more than 3% in the same time frame, making U.S. exports more attractive for China.

“The change in psychology is that Brazil is no longer the seller it was,” said Jim Sutter, chief executive of the U.S. Soybean Export Council.

Even with sales to China up more than 14% compared with this time last year, more buying is needed to meet the obligations of the trade deal in 2020. Traders hope China will step up to meet that target—especially after Secretary of State Mike Pompeo met with China’s top diplomat, Yang Jiechi, in Hawaii last week to help ease coronavirus-related tensions between the two nations—but some remain skeptical.

“There’s China fatigue with my customers,” said Jason Britt, president of Kansas City, Mo.-based Central States Commodities. “We’ve been up and down the flagpole so many times—it’s frustrating.”

Meanwhile, in energy markets Wednesday, a surge in new coronavirus cases in California and Texas threatened the recovery in demand for transportation fuels and sent U.S. oil futures down 5.8%, or $2.36, to close at $38.01 a barrel. Brent crude, the main international price, lost 5.4% to end at $40.31. Gasoline, diesel and natural gas futures also slid.

The price declines accelerated midday after the U.S. Energy Information Administration said in its weekly oil-supply report that commercial stockpiles of crude and petroleum products swelled to a fresh record last week despite increased gasoline and jet fuel consumption.

 

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