Some soybean traders last week were gullible enough to believe rumours that great progress was made in the first serious face-to-face meeting of American and Chinese negotiators in the trade dispute between the world’s two leading economies.
A U.S. trade delegation of cabinet secretaries led by Treasury Secretary Steven Mnuchin was in China May 3-4 to present a large list of demands. A rumour went around that the meeting went well. Soybeans staged a late day rally May 3 on the hope that improved relations between the two parties would end China’s threat to impose tariffs on U.S. soybeans.
But only a few hours later it became clear that serious disagreements between the parties remain.
That is no surprise. Reuters reported that the U.S. President Donald Trump administration’s demands include a $200 billion cut to the $350 billion trade surplus China has with the United States, sharply lower tariffs and a halt to advanced technology subsidies. China had its own demands.
To expect a breakthrough in the first serious meeting was unrealistic. Even among three of the closest allies in the North American Free Trade Agreement, renegotiation talks have been going on since last August.
In a way the two trade issues, NAFTA and China, are connected. The U.S. would likely love to bag a deal with Canada and Mexico when negotiators meet this week. That way Trump administration trade negotiators would be able to re-focus their full efforts on China. Also, the administration would prefer to get progress now before the U.S. midterm elections in November.
The administration and the Republicans don’t want voters to be nervous over trade wars and the damage they could do to the economy and jobs.
An example of an unsettling headline that they don’t want to see came from Bloomberg news service last week: “China is already cancelling U.S. soybean orders.”
The head of grain trader and soybean processor Bunge, Soren Schroder, told Bloomberg that China in recent weeks was “deliberately not buying” American soybeans.
That sparked reporters at other news organizations to do their own stories seeking comments from farmers and agricultural organizations about the danger to soybean trade.
Indeed, Chinese buyers cancelled several orders of U.S. soybeans in the past few weeks, but American exporters were able to divert some shipments to other countries. Also, it is the time of year when the Chinese normally shift buying to the freshly harvested Brazilian crop.
However, the shift this year appears larger than normal. Brazil’s April soybean exports reached 11.63 million tonnes, about a million tonnes more than the same month last year, its grain exporter association said.
Brazil’s exports have also been supported by its weak currency and by the drought-reduced harvest in neighbouring Argentina, which has slowed competition from that quarter.
Another news wire story from last week was about provincial authorities in China’s northern provinces encouraging farmers to increase their soybean seedings.
However, the amount they are talking about, which would yield an extra 600,000 tonnes if successful, would be a drop in the bucket, considering that the country is expected to import 96 million tonnes this crop year.
The threat to soybean trade and the knock-on implications for the oilseed market generally, including canola, would become more serious if China doesn’t buy this autumn when it usually returns to the U.S. for its freshly harvested crop.
The Americans might want to make progress before the election races this fall, but I would not be surprised to see the Chinese try to delay things, hoping that the Republicans see major defeats, weakening Trump’s hand in the final two years of his term and making it less possible for him to drive a hard bargain.
If this scenario proves true, expect more threats and minor actions over the coming months that affect farm trade and cause short-term price disruptions.
However, the implication for lasting price impact will depend on whether the Americans can pick up markets that Brazil gives up to service China.
Also, we’ll have to see if China can truly go on without U.S. soybeans because while South America could fill in some of the gap, it can’t meet all of the need and there are no other producers with huge exportable soybean surpluses.
To contact D’Arce McMillan, email email@example.com.