China's Return to U.S. Soy Market Isn't Enough to Bolster Prices

(Bloomberg) -- A huge stockpile of soybeans helps explain why the market remains unimpressed with China’s resumption of U.S. purchases.

The world’s largest consumer of the crop bought 1.5 million to 2 million metric tons of American-grown beans over 24 hours, with shipments expected to occur sometime during the first quarter, the U.S. Soybean Export Council said Wednesday. State stockpiler Sinograin and its top food company Cofco are planning more purchases, according to people with knowledge of the plan.

While other markets reacted to the news as a sign the two sides are making progress, the most-active soybean futures contract fell as much as 1.6 percent to $9.1825 a bushel, the steepest intraday drop in a week. Prices gained in the previous two days in anticipation of Chinese purchases.

As futures fell Thursday, aggregate volume for the March contract in Chicago jumped about 30 percent higher than the 100-day average for this time, data compiled by Bloomberg show.

The soybean market is looking for much higher sales to China to put a dent in the mountain of beans stockpiled in the U.S. Inventories are set to double to a record 25.99 million tons, according to the U.S. Department of Agriculture. On Thursday, the USDA reported sales of 1.1 million tons to China.

“We are disappointed with the sales to China,” Ted Seifried, chief market strategist at Zaner in Chicago, said in an emailed response. “We needed at least 10 million metric tons, we got 1.1 million.”

While China’s return this week is a “good start,” it needs to buy more during a 90-day period that the countries have carved out to end the trade spat, USDA Deputy Secretary Steve Censky told farmers at an Iowa Soybean Association meeting Thursday.

To put the purchases in perspective, China buys 30 million to 35 million tons of U.S. soybeans in a normal year, Censky said “There needs to be a lot more” buying, he said.

The recent sales announcements are a positive first step, but more needs to be done given the steep drop in prices during 2018, according to the American Soybean Association. Lifting China’s 25-percent tariffs on U.S. supplies is “vital” during the 90-day truce period, Davie Stephens, the group’s president and a grower in Kentucky, said in a statement. Another “critical” move is announcing the second tranche of the payments USDA has promised to American farmers hurt by tariffs, he said.

--With assistance from Nicholas Larkin and Mario Parker.

To contact the reporters on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net;Jeremy Hill in New York at jhill273@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Millie Munshi

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