This is the SFN Market Report with Brooks Schaffer of Palmetto Grain. Reach him at brooks@palmettograin.com or 843-540-4540
Soybeans ran into a wall Monday, closing down the 70-cent price limit on the May and July contracts. You have to look all the way back to May 2022 to see the last limit move in soybeans. In 2022, it was the beginning of the Ukraine war, and we had a major delay in U.S. planting. Monday’s limit move was not from a big crop report or fundamental change. It was money flow. The funds have built bigger long positions in soybeans and were likely at a new record level, or close to it.
The trigger for the selloff seemed to come from some comments Trump made Monday morning. He said not to read too much into it if he decides to delay his Chinese trip and the meeting with Chinese President Xi. Saying do not read too much into it, of course, made the market read a lot into it. The soybean market is concerned that if there is a growing rift between the U.S. and China, they may delay the trade deal we were expecting and will not be as willing to make purchases of soybeans they do not even really need. It is important to note that the purchases are economically unnecessary and only political in nature. If there is a rift or a growing divide between the U.S. and China, then those purchases could be quickly abandoned.
Trump has been calling for other nations to send assets to help escort ships through the Strait of Hormuz. On Monday, he said several nations have responded energetically, some have agreed though very unenthusiastically, and some have refused, but he declined to name which countries specifically. So, we do not know where China falls on that list. Even if the meeting is just delayed but still has the same outcome, a delayed meeting could equal a delayed trade agreement.
Treasury Secretary Scott Bessent met with his Chinese counterpart in France on Monday to start several days of meetings that were supposed to iron out the agreement for Trump and Xi to sign in Beijing. The talks were reported to have gone very well and relations described as stable. China indicated it was committed to buying 25 million metric tons of soybeans in each of the next three years. They also indicated an openness to buying other ag commodities, including poultry, beef and non-soybean row crops. This opens the possibility of Chinese purchases of grain sorghum, corn or cotton. On any other day this sounds bullish for soybeans, but Trump’s comments Monday morning canceled it out. The market may have also noticed there was no mention of the 8 million metric tons of additional old-crop soybeans Trump said China was considering buying. That glaring absence may have added fuel to the old-crop soybean selloff.
Last week Brazil changed some inspection rules for export soybeans at the request of the Chinese government. That is a strategy China has used against the U.S. in the past when it wants to slow shipments or get out of purchases — it claims quality issues. In this case, it was hoped they were slowing Brazilian shipments to make room for more U.S. purchases. Details were still scarce, but on Monday it appeared some of those new rules had been rolled back.
Also on Monday, there was an overall selloff of war premium in the markets. Crude oil came off its highs and U.S. stocks rallied. The market seemed to believe that things were at an equilibrium, or would at least not see any additional escalation. Only time will tell how long that feeling will last, but it put additional selling pressure on the grains as money flows came out.