China resumed buying U.S. soybeans, bringing some relief to farmers in America’s heartland as Chinese President Xi Jinping works toward a trade deal with President Trump.
The world’s largest consumer of the crop bought 1.5 million to 2 million metric tons of American soybeans over 24 hours, with shipments expected to occur sometime during the first quarter, the U.S. Soybean Export Council said, citing unidentified industry sources.
China’s state stockpiler Sinograin and its top food company Cofco are planning more purchases, according to people with knowledge of the plan. On Thursday, the U.S. Department of Agriculture disclosed sales of 1.13 million tons of soybeans to China.
The purchases represent a major gesture by China toward easing tensions between the world’s two largest economies. Soybeans have become the poster child of the trade dispute, with China shunning imports that affected farmers in rural communities who largely voted for Trump in 2016. Futures in Chicago tumbled as the 2018 harvest piled up, unsold, in silos, bins and bags across the Midwest.
“The shipments, mainly from the Pacific Northwest, will help reduce stockpile pressures for U.S. soybean farmers,” said Li Qiang, chief analyst with Shanghai JC Intelligence Co. Also, “these shipments can ease China’s own shortage of supplies in the first quarter of the year.”
This is the first significant purchase since the two countries began imposing tit-for-tat tariffs, with China slapping a 25% retaliatory levy on American soybeans after Trump imposed duties on billions of dollars’ worth of goods from China.
Trump had hailed a breakthrough on agriculture as part of the trade truce agreed to in his meeting with Xi this month and tweeted, “Farmers, I LOVE YOU!”
But Thursday’s news didn’t impress the market. Soybean futures fell.
The soybean market is looking for much higher sales to China to put a dent in the mountain of beans stockpiled in the United States. Inventories are set to double to a record 25.99 million tons, according to the USDA.
“We are disappointed with the sales to China,” Ted Seifried, chief market strategist at Zaner in Chicago, said in an email. “We needed at least 10 million metric tons, we got 1.1 million.”
While China’s return this week is a “good start,” it needs to buy more during a 90-day period that the countries have carved out to end the trade spat, USDA Deputy Secretary Steve Censky told farmers at an Iowa Soybean Assn. meeting Thursday.
Even before the trade war, farmers had it tough. Net farm income has fallen four out of the last five years and is projected to be $66.3 billion in 2018, or 46% of 2013 levels, according to the USDA.
Tim Bardole, a fifth-generation farmer who grows soybeans with his father and son on 2,300 acres in northwest Iowa, said the news of initial purchases from China “definitely relieves some of the stress.” But “the trade is skeptical until they see the ships go.”
He said the timing of China’s initial purchases are made more difficult for Iowa farmers because of winter. They either send their crops by rail to the Pacific Northwest or down the Mississippi River to the Gulf of Mexico. Winter weather affects the basis, because during those months shipping along the river can be constrained. And Cargill Inc. said this month that the United States has probably already missed the best chance to sell beans to China because of approaching South American harvests.
Jeff Ellis, a second-generation farmer from southeast Iowa, says the trade war couldn’t have come at a worse time, just as the market was showing signs of recovery. Still, he said, Trump was right to stand up to China. Ellis said he’s “nervously optimistic” that gains will be made during the detente.
Among traders, skepticism remains over the impact on the soybean market, as the imports are likely to be made by state-owned enterprises while Chinese commercial buyers that typically buy more are still hampered by tariffs
Thursday’s move is much more significant for sentiment in broader financial markets. Asian equities to rubber futures advanced on hopes that Xi and Trump will be able to reach an agreement within the 90-day period. It also raises prospects for further buying from China, according to JCI’s Li.
“We expect China to resume purchases of other farm products from the United States, including corn,” Li said.