Pause on Trade War

BY MATTHEW WILDE

A cease fire in the U.S.-China trade war came at an opportune time for U.S. soybean farmers sitting on a record crop and China with dwindling stocks.

China purchased about 2.63 million metric tons of U.S. soybeans (more than 96.6 million bushels) in mid-December, weeks after the nations agreed to halt trade hostilities and work out their differences. Analysts and government officials expect China will buy more U.S. agricultural products as the countries negotiate a trade deal.

China placed a 25 percent tariff on U.S. soybeans and other ag products last July in response to U.S. duties on its goods. It all but halted sales to the country and sent soy prices tumbling to 10-year lows.

Trade developments are a step in the right direction, Iowa Soybean Association (ISA) leaders say. Ships full of U.S. soy heading to China will hopefully boost prices.

“This is good news, it’s what we’ve been waiting for,” says ISA President Lindsay Greiner of Keota. “The U.S. placed a moratorium on new tariffs as negotiations proceed, and China responded favorably by buying boatloads of U.S. soybeans. Additional demand is sorely needed.”

The temporary trade truce Dec. 1 followed a dinner meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G-20 summit in Argentina.

Trump agreed to hold off raising tariffs, scheduled to go into effect Jan. 1, on Chinese imports worth hundreds of billions of dollars — implemented to end China’s unfair trade practices, intellectual property theft and narrow the nearly $400 billion trade deficit. China said it would negotiate structural and policy changes pertaining to intellectual property protection, forced technology transfer and non-tariff trade barriers, which have hurt the soybean industry. In the days following the

G-20 meeting:

• Trump tweeted: “Farmers will be a very BIG and FAST beneficiary of our deal with China. They intend to start purchasing agricultural products immediately.”

• Treasury Secretary Stephen Mnuchin confirmed in a CNBC interview that China has offered to buy about $1.2 trillion worth of U.S. products.

• National Economic Council Director Larry Kudlow said he’s confident the nations will resolve their differences and China will drop its retaliatory duties on U.S. commodities.

• U.S. Secretary of Agriculture Sonny Perdue told Reuters that China will turn to the U.S. for soy since Brazil has limited supplies remaining.

Better Prices Ahead?

January soybeans on the Chicago Board of Trade jumped 15 cents initially after China’s first two purchases from the U.S. Prices topped $9 per bushel for the first time since the end of July.

“If the president is right and we start to see massive soy shipments to China, the market will react positively,” Greiner says. “The timing is very good.”

Until recently, China mostly shunned U.S. soybeans after placing tariffs on the oilseed. Prices plummeted about $2 per bushel as a result.

China purchased more than 1 billion bushels of U.S. soybeans last year and 1.4 billion in 2016-17, government records show, but only 35.9 million bushels during the current marketing year as of Nov. 1.

A day before the top-level U.S.-China trade meeting, commodities analyst Bob Bresnahan predicted soybeans would hit $12 per bushel by 2020 after several years of down and sideways prices. The founding president and CEO of Trilateral, a Chicago-based risk management firm specializing in commodities, spoke at the 2018 U.S. Soybean Regional Trade Exchange for Europe, the Middle East

and North Africa. The U.S. Soybean Export Council hosted the two-day conference in Barcelona, Spain.

A positive outcome from the Trump- Xi meeting, and a possible resolution to the trade conflict, only bolsters the projection.

“I think there’s a bottom to allow prices to rally into 2020,” Bresnahan says. “Sideways markets will work their way up into an uptrend … we could violently rally out of the (down) market.”

Plenty of Soy to Sell

Greiner says the U.S. has enough soybeans to supply China and the rest of the world.

“We have plenty to take care of everybody,” he adds.

Despite recent purchases by China,

big supplies are keeping prices down. National soybean production last year is projected at a record 4.6 billion bushels, according to the latest U.S. Department of Agriculture Crop Production Report. Iowa is pegged at 577 million bushels.

Soybean ending stocks for the 2018-19 marketing year are estimated at an all-time-high 955 million bushels.

The clock is ticking to get a deal done with China, historically the nation’s largest market for soybeans. The agreement placed a 90-day moratorium on additional duties for both sides during the negotiation process.

It’s the “first positive news” American Soybean Association Chairman John Heisdorffer of Keota has heard after months of low soybean prices and halted shipments.

“If this suspension of tariffs leads to a longer-term agreement, it will be extremely positive for the soy industry,” he says. “We want to begin repairing damage done to our trade relations with China, which has been essential to successful soybean exports for years.”

A deal, though, is far from done.

ISA CEO Kirk Leeds says recent China developments are encouraging for Iowa’s soybean farmers. But when politics are involved, finding enough middle ground can be a challenge.

With the window to export soybeans to China rapidly closing — Brazil’s soybean crop is expected to be ready for harvest in the next 2-4 weeks — Leeds says a resolution is needed fast.

“Hopefully, we can return to some trading normalcy with China,” he continues. “In the meantime, we’re actively working in other markets around the world to build and maintain U.S. soybean market share.”

Contact Ann Clinton at aclinton@iasoybeans.com.