Currency Concerns: U.S. Soybean Sales Get Caught Between China and Brazil

October 8, 2015 12:00 PM
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China may have just agreed to import a record amount of U.S. soybeans, but American farmers still face plenty of uncertainty from their largest customer. China’s economic growth is easing, the Chinese government devalued the yuan in August, and the pace of U.S. exports to the country is slowing. 

It makes plenty of analysts—and farmers—watchful.

“Anytime something happens in China, it’s going to affect our commodity markets because they’re such an important factor now, not only in soybeans, but also in sorghum and, indirectly, some years in corn,” said Brian Basting of Advance Trading, speaking on U.S. Farm Report.

What is happening in China right now that matters to American farmers? The country is turning to South America--not the United States of America--for soybeans, thanks to the strong dollar and other factors.

“It’s a combination of things really,” explained Andy Shissler of S&W Trading, also speaking on U.S. Farm Report. “Our premium basis here kept them out of the market, and so you didn’t have as much pre-booking as you would have.”

Watch the U.S. Farm Report segment here:

The falling value of the Brazilian real has also make South American soybeans economically appealing to Chinese buyers looking for lower priced soy.

“China will buy new record amounts of beans in their country this year. (Those purchases) will happen—it’s just that it’s not all coming from here,” Shissler said. “The devaluation of the Brazilian currency versus the U.S. is a real problem.”

Farmers aren’t the only ones feeling the pinch of the shrinking Brazilian economy—and China’s bargain hunting. Agribusiness companies such as DuPont (which owns Pioneer) and Monsanto recently saw earnings expectations lowered based on the economic situation in Brazil.

“The revised outlook primarily reflects continued strengthening of the dollar versus currencies in emerging markets, particularly the Brazilian real, and a further weakening of agricultural markets, primarily in Brazil,” said DuPont in a statement, according to a Bloomberg News story.

It concerns those who follow the markets, regardless of the commodities they watch.

“You hope that we don’t go into a default situation in Brazil or something like that,” Shissler said. “That’s the kind of scary black stuff that’s hanging around the market as we see all these currencies doing weird stuff.”

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