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Trade truce spurs China to buy U.S. soy

Article cover photo
Dermot Hayes, international economics professor, with Iowa State University, tells soy leaders the Chinese see the trade war as an attack on their livelihood while we see it as a poker game. (Photo: Joseph L. Murphy/Iowa Soybean Association)

By Matthew Wilde, ISA senior writer

  

Ships full of U.S. soybeans will soon head to China, according to industry and government officials, which could lead to additional sales to the country.

U.S. Sen. Joni Ernst told Iowa Soybean Association (ISA) members today that China purchased 500,000 tons of soybeans (about 18.4 million bushels) valued at more than $180 million. She confirmed the buy via video call during the 2018 ISA Policy Conference in Ankeny.

The U.S. Department of Agriculture, though, reported a 1.13-million-metric-ton (41.5 million bushels) sale, reportedly to Chinese state-run companies Sinograin and COFCO. Yet another report said 1.5 million metric tons (up to 55.1 million bushels).

Regardless of what figure is right, ISA leaders and industry experts participating in a trade panel at the conference say it’s a positive development for soybean farmers. It’s a sign that the world’s two largest economies are working to end their six-month trade war.

“Clearly farmers and the industry were looking for any positive movement, so the recent purchase is good news,” ISA CEO Kirk Leeds said. “What’s critical is we continue to see positive interactions and dialogue between the U.S. and China. Without that momentum, this could be a very small fish in a large skillet.”

China is the No. 1 market for American soybeans. Exports totaled 1.3 billion bushels in 2017 valued at $14 billion. That equaled 60 percent of total U.S. soy exports.

When China placed a 25-percent tariff on U.S. soybeans and other ag products on July 6 in response to U.S. duties on its goods, soy sales to the country all but stopped. Since June, the price of U.S. soybeans to be exported out of New Orleans dropped 20 percent, or about $2 per bushel.

U.S. President Donald Trump and Chinese President Xi Jinping negotiated a trade truce Dec. 1 during the G20 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 and start buying ag products, including soybeans, again.

Both nations agreed to a 90-day deadline to settle trade issues. Negotiations are ongoing.

“We have seen progress with China since the G20 meeting,” Ernst said. “I’m happy the countries are trying to find a path forward.”

Industry experts have voiced concerns the U.S. will lose soybean market share in China to South American competitors even if a trade resolution is reached. Some trade panelists cast doubt on that possibility.

If China eventually drops its 25-percent tariff on U.S. soybeans, either as an act of good faith during trade negotiations or as part of a settlement, Ed Beaman of the U.S. Soybean Export Council (USSEC) believes the country would resume previous purchasing levels.

“I can see them buying 35 million metric tons (nearly 1.3 billion bushels) or more,” said Beaman, USSEC senior director of basic market development. “But not this year, we’ve lost too much of the marketing window.”

He added that China could buy 40 million metric tons from the U.S. as its needs grow and trade harmony exists.

Most U.S. soybean sales typically occur from September through February. However, a projected record Brazilian soybean crop is expected to start coming in by mid-January.

Panelist Xiaoyue Li, China team lead for INTL FCStone, expects little to no U.S soy demand destruction in China if a resolution is inked within the negotiating window.

He expects China to purchase another 5 million metric tons (183.7 million bushels) of soybeans soon, but not much more than that unless the tariff is dropped. Oilseed analyst John Baize said nearby purchases could hit 8 million metric tons.

“There’s maybe two months of the purchasing window left before U.S. has price competition again,” Li said. “If the tariff goes off, the U.S. would have an advantage.”

Beaman said USSEC has maintained solid relationships with Chinese buyers during the trade spat that will hopefully pay off.

ISA Secretary Dave Walton, a grain and livestock farmer from Wilton, said the possibility China will continue to be a big soybean buyer from the U.S. if trade differences are worked out is encouraging.

“It’s the best thing I heard today,” he said. “I was considering planting more corn next year despite the benefits of rotating crops. But given current economics, rotation doesn’t pay the bills.

“Now I’m in more of a wait-and-see mode as far as my planting intentions,” he added.

Some Industry analysts have predicted up to 8 million less acres of soybeans planted in the U.S. next year.

Some industry experts are skeptical about future Chinese soy purchases. January soybeans on the Chicago Board of Trade dropped 13 cents per bushel today closing at $9.07.

Panelist Dermot Hayes, an international economics professor at Iowa State University, is leery the U.S. and China will reach a trade settlement. Big soy purchases from the U.S. are also in doubt due to African swine fever that’s reducing China’s pig population, he said.

“There’s enormous uncertainty,” Hayes said. “The bottom line is we have to produce less soybeans if the trade war continues.”

U.S. soybean farmers harvested a record 4.6 million bushels. The government projects ending stocks for the 2018-19 marketing year at 955 million bushels, an all-time high.

“As everyone knows, we have an incredible supply of soybeans,” Leeds said. “Clearly, we have the only significant supply in the world today. If the Chinese need soybeans, and it appears they do, it makes sense they come to us.”

Contact Matthew Wilde at mwilde@iasoybeans.com

For media inquiries, please contact Katie Johnson, ISA Public Relations Manager at kjohnson@iasoybeans.com or Aaron Putze, ISA Communications Director at aputze@iasoybeans.com

For permission to republish articles or to request high-res photos contact Aaron Putze at aputze@iasoybeans.com. Iowa Soybean Association | 1255 SW Prairie Trail Pkwy | Ankeny | IA | 50023 | US

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