Soy Boom? China Could Buy Record Amount of US Soybeans

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by Tyler Durden
Wednesday, Aug 26, 2020 - 08:05 PM

The prospects of strong Chinese demand has pushed Chicago soybean futures prices to a seven-month high this week.

In a throwback to 2019 optimism on the US-China trade deal, the Trump administration has shifted from vaccine pump headlines to trade. Bloomberg cites several sources who say after top U.S. and Chinese trade officials reaffirmed phase one trade deal commitments earlier in the week, that China is planning to purchase a record amount of soybeans. 

The sources estimate total purchases could be around 40 million tons this year, an amount that would be 25% more than the levels seen in 2017. 

"China has been stepping up purchases of American agricultural goods since the end of April, with soybean sales for delivery next season currently running at their highest level for this time of year since 2013," Bloomberg notes.

China has been lagging behind purchase commitments laid out in phase one trade agreement. We outlined this in a piece titled ""Trade Deal" Farce Summarized In These Charts."

Bloomberg estimates that China's purchase commitments of farm goods for the first seven months of the year were at just 27% of the target value implied by the deal.

The USDA reported Tuesday that Chinese importers bought 408,000 tons of U.S. corn and 204,000 tons of U.S. soybeans. Then on Wednesday, China's agriculture ministry said soybean imports were expected to rise into the late year. 

USDA sales for next season. h/t Bloomberg

However, China has been sourcing much of its soybeans from top supplier Brazil. The expectation is that more U.S. bean shipments to China will be seen in the fourth quarter.

Super Highway of Soybean Vessels from LatAm To Asia. h/t Zerohedge

With all the optimism around trade in recent days, Darin Friedrichs, a senior analyst at StoneX Group Inc. in Shanghai, believes China meeting phase one targets this year will be a tough challenge. 

 "I think the math is pretty hard to get to 40 million," Friedrichs said. "Peak monthly loadings during the fall have typically maxed out around 7.5 to 8 million tons per month from the U.S. to China. I think 35 million is probably more reasonable."

He added that Chinese purchases of U.S. beans in the fourth quarter might not be as large as everyone thinks because a huge Brazilian crop is expected in 2021.

The sources said China would import 96 million to 98 million tons of beans this year, with 40% to 50% of it coming from the U.S.