Soybeans surge to near 4-mth high, analysts wary of G20 bounce

Soybean futures on the Chicago Board of Trade surged to their highest level since August in early trade on Monday after President Xi pledged to buy agricultural products from the US at G20 talks over the weekend.

January futures opened above $9/bu for the first time since mid-October and rose to a high of $9.23/bu on the expectation that Chinese crushers may once again start to buy US soybeans.

On Saturday, the White House issued a statement saying that it would row back on plans to lift the 10% tariff on $200 billion worth of Chinese imported goods to 25%.

In return China agreed “to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States” to cut the trade balance.

In addition, the statement said that both parties would “immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture.”

The statement triggered hopes in the US that Chinese crushers at the very least may start to buy US beans if they are cheaper after import taxes than Brazilian ones.

“Any signal, even if temporary, that this trade war may de-escalate is welcome news for farmers,” said Angela Hoffman, executive director of Farmers for Free Trade.

China placed an additional tax of 25% on US imports of soybeans in July.

Since then, Chinese crushers, which usually purchase more than 30 million mt per year, have not purchased any US soybeans regardless of whether they were cheaper than South American beans over concerns about non-tariff barriers at ports.

Cautious

While the Board was bullish, analysts were cautious, pointing out that there was no explicit commitment to buy US soybeans or lift tariffs.

Indeed, China’s government in its statement simply said that it was willing to import more goods from the US “based on the needs of the Chinese people”.

“It remains to be seen what consequences the weekend’s somewhat vague declaration of intent will actually have,” said Commerzbank in a note, pointing out that “price buoyancy” would remain moderate since “the conflicting parties are still a long way from resolving the trade dispute.”

“The big short term question is will the Chinese lift their import tariffs on US grains to start buying? If they do, will they lift them for the entire trade, or will they only lift the tariffs for Sinograin? Will they buy cereals immediately? Will they buy ethanol immediately?” said Charlie Sernatinger of ED&F Man.

Meanwhile, soymeal and soyoil futures on the Dalian were broadly unchanged with traders telling Agricensus that the market was waiting for "China to say something" before moving.

“The move [of futures] is smaller than we expected,” one analyst from a major Chinese crusher told AgriCensus.

January soymeal futures on Dalian board closed at CNY3,012/mt ($437.16/mt) on Monday, slightly below last Friday close of CNY3,056/mt ($443.54/mt), responding to the news of which China and the US had decided to not impose more tariffs for the next three months.

“Seems like everyone is quite calm, and not giving too much hope on tariffs being cancelled,” one China-based trader from an international soybean importer said.

Brazil premiums crashed in November, falling about $40/mt, leaving US beans much more expensive after the 25% additional tax.

According to crushers, PNW beans were being offered for December loading on a delivered basis into China at 124 cents per bushel over futures, equating to about $381/mt CFR China and $538/mt after taxes and VAT.

That compares with Brazilian beans being offered at 205 cents over January futures for January loading, which at current futures levels equates to $410/mt CFR China and $463/mt after taxes and VAT.