Why is China Buying US Soybeans?

Published on: 20:38PM Sep 26, 2019
DLEAD

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND MAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.

In the last 10 days China has bought roughly 1.6 million metric tons of soybeans from the US and has granted tariff exemptions on a total of 6 million metric tons of soybeans to be purchased before trade talks resume in October. While this is nowhere near the amount China had been buying before the trade war and before ASF it is a pretty substantial amount. The question is why?

Since the trade war between the US and China began China has avoided buying US beans as much as they could aside from some token purchases as a show of good faith. With a 25% tariff and big crops in Brazil China had an opportunity to partially move away from US beans. Then there was an African Swine Fever outbreak in China further diminishing their soybean demand allowing them to avoid the US almost altogether. 

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The trade war is still going on and China is still battling ASF, but trade talks have seemingly become slightly more positive. According to China this is why they have been aggressively buying US soybeans again, saying it is a sign of good faith. However, I wonder what the real motive is.

Call me crazy (wouldn't be the first time) but, I wonder if China has an ulterior motive. Could it be that China sees the current low prices in US soybeans as an opportunity to buy cheap? Is it possible that China is worried that the US crop might not be as big as the USDA is suggesting and they are worried prices could go much higher? I find it interesting that China began to buy after the USDA gave us a report showing the lowest pod count since 2012 but with an absurdly high pod weight saving the national average yield. Some dryness in Brazil may have even fueled the fire further.

Maybe China is Buying just to entice a trade deal. If true what does that say about their situation? Either way I have a hard time believing that fear of soybean availability (even in the slightest) isn't part of their motivation for the recent US soybean purchaces.

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Nov Soybean Daily Chart:

Nov Soybean Daily Chart

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In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Ted Seifried (312) 277-0113 or [email protected]

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