It all started February 2, 2023, when the Pentagon said it had detected a Chinese spy balloon hovering over Montana. Since the news broke, the unknowns about the object, along with the detection of more unmanned objects, sent the U.S. into a flurry. Now, market analysts warn farmers the situation could impact the crops they sell.
The Chinese balloon flew over the United States and Canada for a week before President Joe Biden issued an order to shoot it down. While Beijing denies it was a government spy vessel, the situation is sparking rising tensions between the U.S. and China.
Immediately following the decision to shoot down the balloon, the Chinese Foreign Ministry expressed what they called full dissatisfaction and protest against the balloon being shot down, saying it was a “violation of international practice.” It also caused the Biden administration to postpone a trip to China.
As the suspected spy balloon saga plays out, it’s not helping an already strained relationship with China. Arlan Suderman of StoneX says it could ultimately impact U.S. exports.
“Absolutely, it’s a risk,” says Suderman. “Now, how imminent is it? That’s the big question we face right now. Longer term, I think China is going to continue to move away from buying from the United States. They’ve been buying from us now because they don’t have a choice.”
Suderman says Brazilian soybeans are going to be cheaper, which means China will buy everything they can from Brazil.
“Brazil just doesn’t have the supply until harvest, and that harvest was delayed,” Suderman adds. “But now they’re starting to get those soybeans. That marketing year to date soybean sales exceeds the seasonal pace needed to hit USDS target by about 65 million bushels. And that’s slowly declining. Now as they shift to Brazilian beans, I think we’re going to hurt at the tail end of the marketing year when Brazil is going to increase production this year by almost as much as what we shipped to China in all of 2022. So, I don’t think the real pain from the trade relations with China is going to be felt more until next marketing year.”
With the possibility of waning exports to China, Suderman says the U.S. needs to focus on other markets and developing domestic demand, especially for biofuels. He just doesn’t know if that demand will pick up pace before the U.S. potentially loses more Chinese business.
Brian Basting of Advance Trading is also watching the situation with China. He says that relationship, and the impact on demand, is something farmers should watch, but he’s also keeping a close eye on the crop size in South America.
“As we move forward here, if we’re going to see China remain a large importer, I think that the carry out for old crop beans potentially may be a bit overstated from the standpoint of we are seeing some pretty good export business here at the tail end of the first half of the crop year for beans,” says Basting. “So, perhaps that old crop carryout for beans could be edged down a bit. I don’t want to give the impression it’s going to be super tight, but it does underscore again the point that Argentina beans the next 45 days, if that crop size continues to decline, the market will depend heavily then on Brazil not only to supply the world, but also in this case, to supply Argentina.
Basting says his biggest watch out is both old and new crop corn demand. He thinks the biggest potential in the short-term is an increase in soybean exports due to potential problems with Argentina’s supplies.
