China Buys Soy Amid Tensions | Blog

Tensions are escalating between the US and China as the toll of the COVID-19 weighs heavier every day. Even so the Chinese appear to be attempting to live up to their Phase 1 trade agreement promises as they continue to purchase US Soybeans. 

"China will still implement the trade deal and chances are high that China will speed up purchases." This according to an official of COFCO, China's largest agri-product company. 

Notably, China has purchased both old crop (soybeans harvested in the fall of 2019) and new crop (soybeans which are only being planted now for harvest in fall 2020). The USDA is projecting exports of 1,675 million bushels of old crop soybeans. Dan Cekander of DC Analysis points out that "China will need to be significant buyer of old crop US soybeans for USDA's export projection to be realized."

Old crop soybeans that are not purchased by September 1st 2020 will be carried over to the 2020-2021 balance sheet as "beginning stocks." 

The USDA is currently estimating that number to be 580 million bushels. Additionally, the USDA expects American Farmers to produce another 4.125 billion (with a b) bushels this year. 

While that is a big number, keep in mind that demand is expected to outpace production for the 2020-2021 crop year. In fact, the USDA only expects an excess of 405 million bushels of soybeans at the end of the 2020-2021 crop year. This represents a 175 million bushel reduction year over year (580 million bushels – 405 million bushels). 

A reduction in inventories and increasing demand is working to tighten the soybean balance sheet which is likely to be supportive for prices. 

Farmers and market participants will keep an eye on US-China relations for any indication of trouble. For the mean time however, the Chinese continue to buy.