Here’s the Motive Behind China's Recent Big Buys of Soybeans

Monday's market news started off with a bang, as USDA confirmed more reports of China buying U.S. soybeans. USDA reported private exporters bought 390,000 metric tons of soybeans for delivery in the 2020/2021 marketing year.

As China ramps up its purchases from the U.S., China may be buying out of necessity, instead of buying to live up to its Phase One trade promises.

"They are driven right now primarily by a fear; fear of shortages," says Arlan Suderman of INTL FCStone. "They believe that they handled Coronavirus better than anyone else in the world, and they had to shut down their supply lines, they even shut down their ports. If they handled it better than anyone else, it's only a matter of time before Brazil and the United States have to shut down, and that could lead to some shortages. Right now, they're more fearful of shortages resulting from Coronavirus and the impact on commodities coming in."

Suderman says China buying trends may mean they are hoarding products, to protect from any future slowdowns in shipments and movement of products.

"We're seeing a massive influx of shipments [into China], and now that they've got most of Brazil's supply bought, they're turning to United States," says Suderman. "No surprise there, the only question is how much will it total up? And how close will it come to the objectives?"

Suderman says doubt is growing about China living up to its $36.5 billion trade promise, even with more soybeans hitting vessels and destined for China.

"I do think we'll see some significant shipments of U.S commodities to China in the last half of this year, not because they're trying to be gracious and kind to us, but because they see it as in their best interest to buy while they're cheap and to hoard supplies,” he explains. “Just in case our ports get shut down as well as Brazil's."

Brian Grete of Pro Farmer thinks the current timeline of purchases supports China's seasonal tendencies.

"We've already seen them buy sorghum, and we've seen him buy HRW [hard red winter] wheat and some corn; I think that we'll see more of those commodities," he says. "On soybeans specifically, these are following very seasonal patterns. China buys a lot of South American right after harvest, then switches to U.S. supplies for new crop delivery in the fall. I think that what we're seeing play out."

Grete thinks more new crop soybean purchases could be in store over the next few months. Even then, Grete says it'll be tough for China to meet its portion of the Phase One deal.

"In terms of whether or not China meets its phase one commitments, in all likelihood, they're probably going to ask for a one quarter extension from what we're hearing," Grete says. "That won't come until later, so that would push everything back a quarter, including the back half of the deal."

If timeline of the deal gets extended, Grete thinks Phase Two agreement could last through the first quarter of 2022.

“The other thing to keep in mind is if President Trump feels like he isn't going to win the election in November, he's probably more likely to become stronger against China, and take a stronger stance there and be more adversary, if that's possible for him." Grete adds. "That's something to keep in mind as we move forward: how do these relations develop? Because it is a developing situation. Neither side really knows what's going to happen day to day, week to week and those types of things. And there is definitely more tension now than what there was a couple weeks ago here."