Soybean terminal

There’s growing skepticism in the Chinese soybean industry that the U.S. trade truce will lead to a flurry of imports by commercial buyers.

While China’s state-owned companies may start buying American beans for national reserves, commercial crushers who usually control the lion’s share of purchases are unlikely to jump back in until the 25 percent retaliatory tariff on the U.S. legume is gone, brokers and traders told Bloomberg.

“Who would dare to buy?” said Jeffrey Xu, general manager at Overseas China Investment Co., a soybean broker based in Hong Kong. “China could purchase today, and Trump may change his mind the next day.”

President Donald Trump and Chinese counterpart Xi Jinping’s pledge last weekend to work toward a deal in the next 90 days led to a three-day rally in Chicago soybean futures. But prices have since tapered off, as U.S. grain traders and lenders wait to be convinced that an agreement is really imminent.

At least one crusher echoed this sentiment. An official at a private processor, who declined to be identified, said they wouldn’t risk rushing to buy U.S. beans, especially given American cargoes are taking longer to be cleared by Chinese authorities — even if they were purchased before the trade tensions increased. An example is the vessel Star Laura, which is waiting near Qingdao for unloading since arrival early last month, according to Bloomberg shipping data.

Risks too high

“Crushers are taking a wait-and-see attitude and are not in a rush to buy,” said Jiang Boheng, an analyst with Luzheng Futures Co., a brokerage based in Jinan in China. “It seems they can manage without it.”

The fundamentals are also working against purchases. China’s hog farmers will increase slaughtering ahead of the lunar New Year when pork demand typically rises, Jiang said. At the same time, pig stockpiles will be kept low for fear of African swine fever that’s spreading across the country. Both will hurt soymeal demand and prices, said Jiang.

Monica Tu, an analyst at Shanghai JC Intelligence Co., said a 10-15 percentage point tariff cut could allow crushers to break even based on current domestic soymeal prices. While crushers may be willing to take shipments from the U.S. in January and February, how much they’ll import depends on the crush margin, she said. Commercial buyers account for about 90 percent of imports.

While crushers risk facing tight supplies early next year due to the halt in purchases from the U.S., usually the largest shipper at that time, a bumper harvest in Brazil will reach the Chinese market as early as March, further cutting the appeal of U.S. beans, said Xu from Overseas China Investment.

“It might not matter for state reserve purchases, but why would others take such risks?” Xu said.