U.S. Soybeans: A Waiting Game Predicated On Chinese Buying

International Futures Group grains specialist Tom Fritz gave a simplified view of the global inventory situation in soybeans in a somber note issued Tuesday:

“The US soybean carryout is 45 million bushels shy of being 1.0 billion. The world carryout continues to grow. The South American soybean crop appears to be developing in fine form. With all of this said one would think prices would be on the defensive; they’re not!!”

Fritz added:

“The trade is hanging their hopes/buying on the idea China is going to buy US soybeans and the amount they buy is going to make a difference.”

Dan Hueber, another agricultural markets veteran and author of the Hueber Report in St Charles, Illinois, sounded a similar caution on Tuesday:

“Little has changed in the bean market as we await something from Washington either in the form of the supply/demand report or in China negotiations.”

Soybeans are the number one US export to China, accounting for $12.4 billion in sales last year. Since early July, however, China slapped a 25 percent tariff on US soybeans, severely restricting their import along with other American merchandise, in retaliation for a similar duty by Washington on $34 billion in imports from China.

Soybeans, and their associated product soymeal, are used by the Chinese to feed the pigs they grow for pork. If unresolved, the trade feud could cost an estimated $4.6 billion of US soy exports to China this year, hurting hundreds of thousands of farmers, largely in red states, who voted Trump into power in 2016.

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More than any product trapped in the tit-for-tat tariffs battle, this is one that could prompt both sides to settle. It explains the market’s near 5 percent rebound over the past three weeks after the US president and his Chinese counterpart Xi Jinping held conciliatory talks on the sidelines of the G20 summit. While Trump threatened to load even more duties on China if it doesn’t comply with Washington’s trade demands within 90 days, the Xi government has been less vocal about the 90-day truce.

In a teaser to markets, Trump tweeted on Tuesday: “Very productive conversations going on with China! Watch for some important announcements!”

But the soybean market has been watching and waiting, rolling back most of the 20 percent price drop that occurred between May and September, before word of upcoming Trump-Xi talks led to a rebound.

At Tuesday’s settlement of $9.15 per bushel, Chicago-traded soybeans for January delivery were still down nearly 5 percent on the year. Technical analysts on Investing.com still rate January soybeans a “Strong Buy” and peg resistance as high as $9.31 per bushel—meaning the contract could gain another 16 cents.

And while prices rose again Tuesday, analysts weren’t sure how long the uptrend could last without some voluminous Chinese demand coming in to balance surging US soy inventories. Fritz said stockpile estimates for soybeans were rising each week, with 8 million metric tonnes being the last count.

On speculation about Chinese buying, he wrote:

“It is thought the purchases will be split between old crop and new crop. If it is the lesser amount and it is split, you’re talking roughly 92 million bushels on each side. If our current carryout is 955 million bushels and we sell 92 million, then the carryout is 863 million bushels. Am I to believe this number is bullish?”

He added:

“Like corn, I have to wonder if the trade is already looking ahead to the January production report. There is a lot of chatter as to the amount of soybeans that were left in the field."

"I don’t know which of this or any of this will happen, but given the fact that every attempt to sell off since Dec 3rd has been bought, I get the impression the market is getting set up for an exhaustion move to the upside similar to a buy the rumor/sell the fact type scenario.”

Hueber noted that while US soy farmers were waiting for a boon in new imports from Beijing, competing growers in Argentina were moving aggressively to capture some of the spoils of the US-Sino trade war. Hueber particularly referred to remarks by Emilce Terre, chief analyst at the Rosario Exchange in Argentina, which has projected14 million metric tonnes in soy exports this year, double from last year and outpacing the 2009/10 record of 13.3 million metric tonnes.

Hueber said:

“Currently 95% of all their bean exports are headed to China. Of course, this is predicated on Argentina producing a much better crop this year as weather issues plagued last year production.”

He added:

“The irony right now though is that due to the shortfall, they have needed to import soybeans from the US and in fact for the month of October, Argentina was the top export market for US bean taking in a total of 566,272 metric tonnes.”

Written By: Investing.com