China to Buy Record Amount of American Soybeans in 2020

(Bloomberg) -- China is set to buy a record amount of American soybeans this year as lower prices help the Asian nation boost purchases pledged under the phase-one trade deal, according to people familiar with the matter. Soy futures in Chicago climbed to a seven-month high.

The total from the U.S. will probably reach about 40 million tons in 2020, the people said, asking not to be identified because the forecast isn’t public. That would be around 25% more than in 2017, the baseline year for the trade deal, and roughly 10% more than the record set in 2016, according to data from the U.S. Department of Agriculture.

China has been stepping up purchases of American agricultural goods since the end of April, with soybean sales for delivery next season currently running at their highest level for this time of year since 2013. The Asian nation has also set several daily records in corn purchases, putting it on track to exceed for the first time an annual quota set by the World Trade Organization.

China’s purchases of American farm goods over the first seven months of the year are at just 27% of the target value implied by the trade accord, according to Bloomberg calculations using Chinese customs data, with imports of U.S. beans in July at an unusually low level.

China’s agriculture ministry said Wednesday it expects soybean imports to rise in the second half, including from America as the phase-one deal is implemented. The U.S. usually exports the bulk of its beans toward the end of the year, just as southern hemisphere supplies run out. Brazil is China’s biggest supplier of the crop.

On Wednesday, the USDA announced a flash sale of 400,000 tons of America soybeans to China for delivery next season. That comes on top of 204,000 tons of sales reported Tuesday. Flash sales are made public once more than 100,000 tons is sold within a day.

Still, the target for 2020 will be tough to hit, according to Darin Friedrichs, a senior analyst at StoneX Group Inc. in Shanghai. “I think the math is pretty hard to get to 40 million,” he said. “Peak monthly loadings during the fall have typically maxed out around 7.5 to 8 million tons per month from the U.S. to China. I think 35 million is probably more reasonable.”

Moreover, private buyers won’t have much incentive to make record-breaking purchases in the fourth quarter because of the potential for a huge Brazilian crop next year, Friedrichs said.

Trade Cooperation

The U.S. and China reaffirmed their commitment to the phase-one accord in a biannual review this week, showing a willingness to cooperate on trade even as tensions escalate over issues ranging from data security to the future of democracy in Hong Kong.

China will ultimately import a best-ever of 96 million to 98 million tons from all nations this year, with 40% to 50% of that coming from the U.S., said one of the people familiar. Another said the forecast is for purchases of as much as 40 million tons.

In 2017, China imported a record total of 95.5 million tons in soybeans from around the world, according to customs.

Chinese purchases of American soy are likely to continue into January, as the majority of supplies exported from Brazil in the first month of the year would normally come from stockpiles and thin reserves will hinder shipments, said Daniele Siqueira, an analyst at consultancy AgRural. Other observers also point to a possible delay in plantings in Brazil due to dry weather.

But, soybean prices and the impact of the coronavirus pandemic will ultimately dictate how much China imports, one of the people familiar said.

When contacted for comment, China’s customs referred to publicly available data on the nation’s agricultural purchases.

Soybeans for November delivery climbed as much as 0.6% to $9.2575 a bushel, the highest for a most-active contract since January. Futures were little changed by 11:41 a.m. in Chicago.

©2020 Bloomberg L.P.

With assistance from Bloomberg