U.S. grains: China trade news provides lift

CBOT January 2020 soybeans with 20-, 50- and 100-day moving averages. (Barchart)

Chicago | Reuters — U.S. soybean futures touched a three-week high on Friday after Washington and Beijing announced a “phase one” trade deal, but the market pared gains amid uncertainty about the details of the pact, including the size of any potential Chinese agricultural purchases.

As part of the agreement, Beijing committed to buy an additional $32 billion in U.S. agricultural products over two years, or roughly $16 billion a year more than the 2017 baseline of $24 billion, U.S. Trade Representative Robert Lighthizer said (all figures US$). He said Beijing would aim for another $5 billion in farm purchases each year on top of that.

Lighthizer said broad targets for Chinese purchases would be released publicly. There would also be specific targets for purchases of specific products, but those would not be made public to avoid distorting markets.

U.S. corn and wheat futures followed soybeans higher in response to the news.

Chicago Board of Trade January soybean futures settled up 9-1/4 cents at $9.07-1/2 per bushel, after reaching $9.17, the contract’s highest since Nov. 19. CBOT March corn ended up 3-1/4 cents at $3.81 a bushel, and March wheat rose 2-1/4 cents to close at $5.32-1/2 a bushel.

Front-month soybeans had been trading above $10 a bushel in June 2018, before the start of the trade war. With U.S. farmers sitting on a huge soy surplus following several bumper harvests, prices tumbled as China, which used to buy 60 per cent of the U.S. soy crop, turned to South American supplies instead.

Soybean futures have since pared losses, supported by poor U.S. weather that limited the size of the 2019 crop.

Values firmed on Friday but gains were muted as traders sought more information about the trade pact.

“(D)emand is still the same today as it was yesterday. Some increase in demand is likely, but prices likely don’t sustain a rally without details to justify the move,” INTL FCStone chief commodities economist Arlan Suderman said in a client note.

The United States has been pushing for China to commit to buy $50 billion in agricultural products in 2020, after U.S. President Donald Trump said during an Oct. 11 news conference that the two countries had agreed to a “phase one” trade deal that included a “purchase of from $40 (billion) to $50 billion worth of agricultural products.”

China bought $24 billion in U.S. farm products in 2017, according to U.S. Department of Agriculture figures.

“Grain traders are pessimistic about what sort of agricultural purchases are actually possible,” said Joe Vaclavik, president of Standard Grain.

“The entire soybean crop is valued at $32 billion. So for them to hit $50 (billion) would be impossible, in my opinion, in a given year. Could they increase purchases and get back up to a pre-trade war type level? Sure, that is probably possible,” Vaclavik said.

— Julie Ingwersen is a Reuters commodities correspondent in Chicago; additional reporting by Gus Trompiz in Paris and Naveen Thukral in Singapore.

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