This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540.
Wednesday looked like just another boring trading day in the grains, with no new news to move the market. Then a single Trump social media post changed all that. He said he had just finished a call with Chinese President Xi, and China was considering increasing their soybean purchases to 20 million metric tons (mmt) for this season, and they had already committed to purchasing 25 million metric tons for next season. The markets seemed to be getting numb to headlines, but this one was different. Soybeans immediately jumped up and were trading as much as 50 cents higher in the day session. They fell back off the highs but still finished the session at a respectable 30-cent higher close. Thursday, there was more follow-through buying, and it was even able to spill over to corn and wheat and give corn the highest close since the fateful crop report day of Jan. 12.
The Chinese have already bought 12 mmt of U.S. soybeans in this crop year, so it would take 8 mmt more to get to 20. Eight mmt is 293 million bushels, and U.S. carryout is estimated at 350 million bushels. That would bring us down below pipeline supplies, so we do not have 8 mmt more to sell to the Chinese. I do not think the market is necessarily taking these numbers as gospel, but the tweet does represent a shift in tone, and that’s what the market reacted to. Trump included some very nice words about China and Xi himself in the post, which is very meaningful to the Chinese. The interpretation of the post is that tensions between the U.S. and China are being reduced even further. The 12 mmt that China bought were all bought at a higher price than they could buy Brazilian beans for, so they were all political purchases. If the Chinese are also trying to dial back tensions in a significant way, Trump is making it clear that he wants them to do that, in part, through additional agricultural purchases. As the Brazilian soybean harvest advances, Brazilian beans are going to keep getting cheaper relative to U.S. beans. It will be harder to justify buying U.S. beans over Brazilian ones. If the Chinese continue buying U.S. beans at a bigger and bigger premium, it will signal an even stronger desire to build goodwill and back further away from trade conflicts. Of course, all of this could change tomorrow with another tweet.
Thursday’s strength spilled over into corn and wheat as well. There was a feel of speculative money coming into ag commodities. There were major selloffs in stocks and other asset classes, and some of that money was moving into ag commodities, which has been a forgotten asset class for a while now.
If the Chinese do indeed keep buying soybeans, there will be additional upside, but there is still a very big crop coming in South America. This feels like a gift that needs to be sold. If we are wrong and it does keep going up, we will sell more new crop.