With phase one of a trade agreement with China signed on Jan. 15, the soybean market is hoping to get a boost from the announcement. But immediately after the announcement prices actually dropped before rebounding at the end of the week to where they were prior to the agreement.


“I think with the U.S./China agreement the soybean market is looking for some action fairly quickly,” said Frayne Olson, grain marketing economist at North Dakota State University. “I am not convinced that China will come in and start buying their brains out. I think they will be interested in U.S. grains. I think they will come in and buy some U.S. soybeans, but they’ll be very strategic about their purchases. So we’ll wait to see on that front.”


Now that this phase one agreement is in place, Olson feels the soybean market will start looking toward more of our traditional, seasonal indicators, such as what’s happening with South American production and with South American weather. So far, the South American weather has been “pretty benign” and favorable for normal development.


Producers in northern Brazil are going to be starting their harvest process pretty soon because they had their crops in relatively early this spring and the area has been a little on the dry side. As a result crop progress has been ahead of where it was last year.


“I think next week in particular is going to be a little slow unless we get some unexpected purchases from China. Again, the market has been looking for that,” Olson said on Jan. 20, adding that China is going to be looking for quantities and the market will be watching what strategy they have moving forward now that the phase one agreement has been signed.


The market is also keeping a watch on the recently approved U.S.-Mexico-Canada trade agreement (USMCA), to see if that produces any additional sales. USMCA replaces NAFTA (North American Free Trade Agreement).


After the announcements of the signings of the two trade agreements, many thought that prices would jump up, but they actually went down from earlier in the week, Olson noted, pointing out that by the end of the week prices had gone back up to where they began the week.


“As markets closed on Friday (Jan. 17), prices were at about the same levels as they were earlier in the week, so some of that I think was some profit taking, some folks in the investment community that had positions in place and the market didn’t quite respond the way they were expected to,” he said. “Really, the signing ceremony itself was kind of neutral.”


Olson noted that with the signing of USMCA, details of the phase one agreement had been studied fairly carefully and the market was trying to evaluate what that means for grain prices in general, not just specifically for corn and beans, but for grain in general.


“I think it will be long-term supportive, but I don’t see any real big short-term increase,” he said. “Some people in the market are thinking that China will come in and start making some pretty aggressive buys just because of the dollar value of the agreement.


“The numbers that are in the agreement indicate China has to buy some pretty large dollar volume of agricultural products,” he continued. “But when you look at the list of products that they can purchase that count toward that goal, it’s a pretty long and diverse list. So I think there’s going to be some room for flexibility on the Chinese side for what they buy and when they buy it.”


In explaining the specific targets, Olson said the agreement used the year 2017 as the base or reference point. In that year, China purchased $24 billion worth of U.S. ag products. The agreement states that China needs to purchase an additional $32 billion worth of products over two years. In the actual published agreement there needs to be a minimum of an additional $12.5 billion in calendar year 2020, and a minimum of an additional $19.5 billion in calendar year 2021.


“The total over two years has to be an additional $32 billion or more than the reference year of 2017,” he said. “They can go over if they want, but it’s at least $32 billion over the $24 billion. The $24 billion was a one-year total and I want to emphasize that the $32 billion is a two-year total, which is a pretty big number.”


However, Olson emphasized that those purchases don’t have to come from corn and soybeans and wheat. The list of commodities is pretty long and varied. It includes meat products, dairy products and fruits and vegetables.


“So if I’m sitting on the Chinese side, I’m thinking about, ‘well, what’s my purchasing strategy going to be to meet these new goals, these new targets?’ I’m going to look for those base commodities, but I’m also going to be looking for some higher value products,” Olson said.


“Of course, with the challenges they have with African swine fever, pork and pork products, or meat products in general, but pork and poultry seem to be one of those that would fit well into a buying plan.”


Olson is unsure of what impact the trade agreement with China will have in the marketplace.


“I really don’t see it having this big shock value that everybody was kind of hoping for, just given the structure of the agreement,” he said. “But it will definitely put very strong support into agricultural prices and, of course, corn and soybeans being two of those large ones.”


From a marketing standpoint for soybeans, one of the things Olson said he’s curious to see is USDA’s WASDE (World Agricultural Supply and Demand Estimate) report in February. That’s because USDA, when they put together its forecast for total annual agricultural exports, what they do in their process is assume that the trade policy in place at the time remains in place.


For example, in its January forecast for usage, for exports specifically, Olson said USDA assumes that the phase one agreement was not signed.


“So one of the things I’m going to be looking for in the February report is how does USDA adjust their forecast for exports and the export pace, particularly for soybeans, given that we do have a phase one agreement,” he said. “And as they re-run their analysis and say, ‘well, what does this look like,’ I think there might be some surprises in those numbers.”


As for marketing soybeans early in 2020, Olson said the strategy for old crop and the strategy for new crop are a bit different.


“I’d try and be a little more aggressive in getting old crop supplies priced, especially for soybeans, but I’d be a little bit more cautious and a little more patient with new crop,” he said.


Looking at local prices, at one local elevator in west central Minnesota regularly followed in this column, as of Jan.17, the February cash price for soybeans was $8.54 per bushel and basis was -75 cents under. August 2020 cash price was listed at $8.79 and basis was -80 cents under.