ANALYSIS: Sinograin soybean purchases a sign US-China trade deal falling apart

12 May 2020 | Andy Allan

After months of speculation and universal doubt that China can fulfil its pledge to buy $35-40 billion worth of agricultural goods per year for the next two years, state-owned crusher Cofco and stockpiler Sinograin came out recently and started to buy hundreds of thousands of tonnes of US soybeans.

According to Agricensus data, this week alone, the world’s biggest stockpiler of soybeans has snapped up at least 400,000 mt.

Total state-backed purchases since April 20 reached 2-2.3 million mt.

And based on USDA data, it can be seen that soybean purchases in the past two months have certainly accelerated for both this marketing year and next, with the data showing that more than 1 million mt purchased in April.

That was largely bought by China’s state-owned agribusiness giant Cofco and was double what was bought in March.

Of note is that most of that volume looks to be for the current marketing year when it is around $3-4/mt more expensive to buy US soybeans than Brazilian ones.

But rather than an attempt to fulfill a commitment to ramp up agricultural purchases, it might be a clear sign that things on the agricultural trade front might be starting to fall apart.

Grain slump

While China is reliant on the US for soybeans to keep its protein costs down, trade deal or not, it is less reliant on the US for other agricultural goods.

And this is where the first signs of a slowdown in purchasing are beginning to emerge.

Purchasing of corn and wheat, after initially seeing a small uptick in March, has tailed off as the US rhetoric around who is responsible for the Covid-19 outbreak has ramped up.

China purchased more than 1 million mt of both grains in March, but virtually nothing in April.

For ethanol, Q1 exports of US ethanol to China remained below the level of 2017, the baseline year for the trade deal.

Despite some companies, such as ADM, hope that ethanol purchasing will ramp up in Q4, with oil prices recovering from multi-year lows that’s hard to picture right now.

Coming against a backdrop of the need to ramp up purchases, it doesn’t look promising.


And all this is happening at the same time that relations between the world’s two biggest economies are deteriorating.

On Monday, the Global Times newspaper – largely seen as the unofficial mouthpiece for the Communist Party – quoted anonymous advisors saying China may seek to redraft the deal to make it more favourable to Beijing.

When asked whether he would be interested in renegotiating the pact that was signed just four months ago, Trump said on Monday evening: “No, not at all. Not even a little bit... they’d like to reopen the trade talk, to make it a better deal for them".

And this comes at a time when China-bashing is becoming increasingly popular in the US.

According to a Pew survey in March, about two-thirds of Americans have an unfavourable view of China, up almost 20 points since President Trump took office and the highest rating since Pew started the survey 15 years ago.

Could it be that wider anti-China rhetoric is more important to President Trump’s election campaign than appeasing his key supporter base of Midwest farmers?

It is always difficult to assume political intentions from trade data, but it is not inconceivable for China to start stockpiling US soybeans now to stop a price spike in Brazil, regardless of the trade deal.

The last time trade tension broke out, prices for soybeans at ports in Brazil – the world’s largest exporter – surged $60/mt, adding an eye-watering $4 million to the cost of each cargo in a matter of days.

And that cost heads straight into the price of pork on the Chinese dinner plate.

On May 12, the USDA will give its latest estimate on the total US soybean export figure for this year and next.