Crushed by Trade War, Farmers See Silver Lining With New China Truce

WASHINGTON—The partial trade agreement with Beijing brings relief to U.S. farmers who rely on China as a crucial market for soybeans, sorghum, pork, and dairy.

China is reportedly pressing ahead with large purchases of U.S. farm products. Early this week, media reports surfaced claiming that Beijing would offer a tariff-free quota of 10 million tonnes of U.S. soybean imports.

The quota will be provided to state-owned and private soybean processing companies, as well as major international trading houses with processing plants in China.

It would be “wonderful” if the news of China making big purchases “comes to fruition,” said Naomi Blohm, senior market advisor at Total Farm Marketing, a commodity brokerage and consulting firm based in Wisconsin.

“That would be a new demand for our farmers. That would be a reason to see soybean prices stay firm or maybe work higher, which would really help the farmers throughout the Midwest.”

The quota news came after the so-called “phase one” trade deal between the United States and China announced on Oct. 11. According to the deal reached in principle, Beijing agreed to buy up to $50 billion of U.S. farm products annually.

The Chinese government confirmed on Oct. 23 that it would increase imports of certain products, including agricultural goods, as part of its efforts to stabilize foreign trade, according to Chinese state television.

Markets were surprised last week when Chinese buyers increased their soybean purchases from Brazil, the United States largest rival in soybean exports. Despite the trade truce, China booked nearly eight boatloads or 480,000 tonnes of Brazilian soybeans, according to a Reuters report on Oct. 18.

Chinese buyers have turned to Brazil because of a delayed harvest in the United States resulting from bad weather conditions, Blohm explained.

“The United States is behind because of rainy spring, rainy summer, and rainy fall. We dont have beans right now to ship out,” she said. “So thats probably why they bought from Brazil.”

However, Chinese soybean buyers are back and have purchased three cargoes or 190,000 tons, of U.S. soybeans on Oct. 22, she noted.

Optimism and hope

China has bought more than 3 million tonnes of U.S. soybeans since resuming purchases in early September, according to data by the U.S. Department of Agriculture. Soybean futures climbed in recent weeks as a result.

The new trade deal has lifted optimism and hope among farmers, said Blohm, but the agriculture community has “heard this song and dance before and nothing has ever really happened. So were anxious to see what comes out of the meeting” in Chile in November.

President Donald Trump earlier said that the first phase of the trade deal might be signed at the Asia-Pacific Economic Cooperation forum in Chiles capital, Santiago, in mid-November.

The trade war has pushed down the price of U.S. soybeans this year as demand from China dropped. Beijing began imposing retaliatory tariffs on U.S. farm goods in July 2018 and halted soybean purchases from the United States a few months later. This year, Beijing imported small portions of U.S. soybeans to show good faith during the trade negotiations.

Despite recent purchases, U.S. soybean exports to China are still expected to hit a six-year low in 2019, according to AgriCensus, a market intelligence firm.

Price Rally

In recent weeks, there has been a substantial rally in the price of soybean. Soybean futures increased about 90 cents since it bottomed out at nearly $8.50 a bushel in early September, according to Joe Vaclavik, president of Standard Grain, a Tennessee-based commodity brokerage firm.

“Its not all because of China. Chinas return to the soybean market definitely has something to do with it. Also, weve had crop problems” in the United States, he said.

“Weve had a very difficult growing season here. Plantings are late. Soybean acreage is down sharply. Yields are going to be down sharply,” he said, adding that the crop “appears to be getting a little bit smaller than what we thought originally.”

Theres a continued weakness on the demand side as well, and its not just because of the trade war. Chinese soybean imports are expected to drop by more than 1Read More – Source