Soybeans have recovered from several setbacks this week to keep marching higher. We have seen headlines and rumors on biofuels, but mostly the strength has been driven by rumors of the possibility of more Chinese purchases. The funds continue to add to their long position, pushing the market higher. After the truce with China was announced in November, the funds built a big long position and pushed the market to recent highs, but then quickly reversed and sold when there was no confirmation from the Chinese side. But then the Chinese did actually buy the 12 million metric tons of soybeans the administration claimed they would, without ever really confirming it. So, the funds have not been as quick to sell their long positions despite mostly silence from the Chinese side.
I cannot say this enough: It still makes no economic sense for China to buy more U.S. beans. Brazilian beans are far more plentiful, cheaper and have easier logistics right now. But in the current state of the world, it does not matter that it doesn’t make economic sense.
Initially, after the Supreme Court’s ruling about Trump’s tariffs, there was concern that other countries would walk away from the deals they had reached. That did not happen. Trump made it clear he would find other leverage for anyone who dared try. There will certainly be some repositioning and some attempts to renegotiate some parts, but there has not been a wholesale abandonment of the frameworks reached with foreign countries so far.
China may feel they have more leverage now while they continue to negotiate, but that may actually make it more likely they buy more U.S. beans. The Wall Street Journal published a story offering a theory that additional soybean purchases could be part of a deliverable to Trump to gain some additional concessions on other trade.
Whether or not China buys more beans from us, at the end of the day the world balance sheet is growing, with a big Brazilian crop being harvested. If China buys more soybeans from us, we may have to import some from South America. The Chinese story is not creating new demand, just shifting demand. It concerns me that the soybean market is on borrowed time, with a big fund long position and a big South American crop being harvested. That is not to say it cannot go higher, even a lot higher. It just means when it turns, it could turn very violently and drop.
Corn finally started to get in on the action this week too, trading back above $4.30 on the March despite first notice day for March futures today. The importance of first notice day on the March is that a lot of basis contracts had to be priced or rolled before today, which puts selling pressure on the futures contract. The market was able to find enough buying to overcome that. It has failed each time it traded over $4.30, and time will tell if that happens again.
Whether or not you believe USDA’s final production estimate, there is still a significant cushion of corn in the U.S. right now. We have great demand but also big supplies to meet that demand. The biofuel story can help the market by creating new demand.
The next big known data point will be the Prospective Acreage report that comes out on March 31. We will also get a stocks report that day as well. Recall last year the March Prospective Planting report was fairly bullish for corn, but the market did not believe it and did not give corn much of a bounce. The market will also continue watching South American harvest and planting progress and the many headlines on the geopolitical front.