Battered U.S. soy gets bullish jolt as door to China reopens

03.12.2018

 Soybeans weren’t on the menu, but it looks like President Donald Trump’s dinner date in Buenos Aires with his Chinese counterpart Xi Jinping gave the market the jolt it’s been desperately looking for.

Futures jumped after trading in Chicago began on Sunday. The White House said in a statement that China will start buying U.S. agriculture products “immediately” following the highly anticipated dinner Saturday on the sidelines of the Group of 20 summit in Argentina. While the announcement lacked details and is far from a definitive arrangement, it’s a significant development in the trade war that has beleaguered U.S. farmers.

“This definitely changes some of the bearish psychology in this market,” and traders and analysts will be keeping watch on whether it’s followed by some actual purchases in the next few weeks, Rich Nelson, chief strategist for Allendale Inc. in McHenry, Illinois, said by phone. “We have to wait for a lot of details but we will have a higher push in prices.”

As tit-for-tat tariffs ratcheted up between the countries, soybeans became the poster child of the trade dispute. China, the world’s dominant importer, started shunning U.S. supplies and Chicago futures tumbled as a result. Across the Midwest, the 2018 harvest had been piling up, unsold, in silos, bins and bags.

It’s hard to overstate how important China is for the soybean world. It’s the biggest consumer by far, using the oilseed as a protein in livestock feed. Chinese tariffs on U.S. shipments have turned usual trade flows on their head. Major exporters like Argentina are now buying dirt-cheap U.S. supplies, while domestic premiums in soy king Brazil surged earlier this year.

Many traders and farmers are hoping an eventual China-U.S. pact can help bring trade back to normal, or at least make it more predictable.

“Hopefully, in the next 90 days, negotiations will move forward and we can move to resolve this whole thing,” Lindsay Greiner, president of the Iowa Soybean Association, said by phone Sunday. “There is a long way to go.”

Trump, Xi agree to halt new tariffs in bid to contain trade war

Ahead of Saturday’s meeting, traders had been hanging on Trump’s every word (and tweet), trying to parse the future for soybean demand. A measure of implied volatility jumped to the highest since August and futures volume rose. Underscoring the apprehension, hedge funds got more bearish on the oilseed just days before prices capped the best weekly rally in five.

The weekend’s developments are good “from a psychological standpoint” for soybeans and other markets that were also hurt by tariffs, such as pork, said Greiner, who is also a contract grower for hogs.

In Chicago, January soybean futures pin-balled between gains and losses for several days, before finally settling up 1.6% in the week ended Friday. The price spiked Sunday in Chicago, the first time traders had a chance to respond to the Trump-Xi meeting that concluded late Saturday.

Soybeans for delivery in January climbed as much as 3.2% to US$9.23 3/4 a bushel, the highest price for the contract since August. Corn futures for March delivery jumped 2% to US$3.85 1/4 a bushel.

While the weekend’s developments are welcome news in Illinois, the largest U.S. soybean producer, farmers are curious, when China’s retaliatory tariffs will be rescinded, given the large harvest and inventories in the state and around the country, Mark Albertson, director of strategic market development for the Illinois Soybean Association, said on Sunday. This is the time of year when China usually buys soybeans from the U.S.

“We have a lot at stake,” he said. “We need to have actual sales.”


theedgemarkets.com

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