China is lashing back at the U.S. after President Donald Trump announced actions against Hong Kong on Friday. China is now telling its state firms to pause purchases of U.S. pork and soybeans, according to Reuters. However, some analysts think any break in Chinese buying is a factor of economics and adequate supplies, not politics.
“The reports that state buyers are to halt purchases of U.S. soybeans and pork comes at a time when short-term supplies within China are abundant due to large recent shipments,” says Arlan Suderman of INTL FCStone. “That gave China a temporary window in which they could make the threat to intimidate the United States, without hurting domestically. However, we have seen in the past that it finds reasons to make purchases when necessary to avoid domestic pain, and our staff there believe that the same will be true again this time as well.”
News stories out that China told its buyers to stop buying U.S. pork & beans. Just got off the phone with our office there. They expect that to be temporary. Supplies are adequate near-term due to current shipments, giving China freedom to threaten. #oatt #soybeans #pork— Arlan Suderman (@ArlanFF101) June 1, 2020
Soybeans prices took a dip initially on Monday, but then did a reversal on market talk that Chinese state-owned buyers are seeking more U.S. soybeans, searching out product both Friday and Monday. Reuters reporting on Monday that Chinese state owned firms bought at least three cargoes of U.S. soybeans for October or November delivery. That news came despite the reports the Chinese government is pushing state companies to stop any purchases.
Suderman says INTL FCStone has staff in China who agree any halt in buys will be temporary, as supplies are adequate near-term. When it comes to China, it’s usually price over politics in deciding what to buy, Suderman says.
“Chinese buyers have largely been buying whenever U.S. commodities were price competitive,” says Suderman. “The biggest obstacle to that has been the strength of the U.S. dollar versus competing currencies. The exception was last week when China’s COFCO bought 8 – 10 cargoes of Brazilian soybeans for Sept./Oct. delivery at a premium to U.S. soybeans and then widely announced it to send a message to Washington. But in the end, Brazil still does not have enough soybeans to bridge the gap to next year’s South American harvest.”
The U.S. dollar retreated further on Monday, making U.S. commodities even more price competitive, not just for China, but other countries.
“On a positive note, the U.S. dollar is breaking chart support and trending lower,” says DuWayne Bosse of Bolt Marketing. “Hopefully a lower U.S. dollar will attract more export demand. “
That demand is needed in order to support prices through harvest, according to analysts.
We have sold to other countries but if we want higher U.S. commodity prices, we need the largest buying in the world to buy from us, and that’s China,” says Bosse.
Before Friday, China had been stepping up to buy more from the U.S., while also sourcing soybeans from South America. The big buys of soybeans last week from China are mainly for new crop soybeans, but Bill Bidermann of AgMarket.Net says there’s no way of knowing if those purchases were from state owned groups in China, or private firms.
“As far as we know private firms have not been given a directive to stop buying,” says Biedermann. “However, private firms are very reluctant to commit to a contract when the geopolitical risk are so high and could financially affect the ability of getting loaded to getting unloaded. It could become a very bad trade. Thus, we believe privates were just starting to trust the environment and now after this weekend, all bets are off unless a private can make such a good deal that there is margin enough to broker it out if it goes south.”
Suderman also thinks private firms are less likely to take buying risks when tensions are rising between the U.S. and China.
“Private firms operate with some sense of fear in China,” says Suderman. “They don’t want to take the financial risk of buying if they fear that the government might take action to prevent shipment. As such they tend to not buy when state buyers aren’t buying.”
Monday’s news of China initially rattled the markets, with some saying this would be a major roadblock in China living up to its Phase One promise. While Bosse thinks the Phase One deal isn’t completely nixed, he fears any lag in buying from China could spark anger within the White House.
“I am concerned that when Trump sees the lack of Chinese buying when they add up totals in July, he might end the Phase 1 trade agreement,” says Bosse.