Grain and livestock futures were mostly lower early Thursday morning, except soybeans.
China Deal Contains Soybean Purchases
Soybean markets were slightly higher on Thursday but well off highs after the announcement of a trade deal with China overnight.
Alan Brugler with A&N Economics says Treasury Secretary Scott Bessent told Fox Business News that China would be buying 12 MMT of U.S. soybeans for this year, likely by January. The 12 MMT is 441 million bushels and only about half of what China bought from the U.S. during the 2024 calendar year.
“Well I think it’s a recognition that we’re already well into the marketing year and anything that’s shipped out under these new purchases is going to be very late in November, December. They could obviously buy quite a bit of soybeans for December, January and Februrary and maybe even tail some purchases off into March and April. But they’re not going to buy large quantities by the time you get out there because the presumed record Brazilian crop will be coming out of the field then. But there’s a hole here,” he says.
Plus, China had agreed to minimum purchases of 25 MMT of U.S. beans each year for the next three years, which equal to 919 million bushels. “I’m a little skeptical about how durable that the latter number is given the overall trade environment and tariff environment, but it looks good on paper.” he adds.
So this may be a bit disappointing to the market. “It’s going back to where they typically would be. So the point is, we want the Chinese to be buying some U.S. beans. The Chinese want to buy some, but they’re not going to go exclusive in any fashion. In a really good year, they would buy 32 to 35 million tons, that would be a strong purchase year.
He says it was also important that the U.S. and China suspended the Section 301 tariffs on ships.
How Will the 12 MMT Impact Soybean Ending Stocks?
Brugler says USDA was assuming some sales to China in the September WASDE but he thinks the agency will need to make some revisions in their 300 million bushel ending stocks number.
He says, “They knew the Chinese had not purchased any new crop beans in August, which they normally would but other than that they couldn’t really single out the Chinese purchases.So there’s volumes in there in the WASDE. But I would expect the USDA would if we start to see these sales show up then I think USDA will probably bump up their overall export expectations a little bit. But if the U.S. starts selling soybeans to China, the U.S. will lose sales to other destinations. So It may very well be, the USDA is going to look at it as, okay, add 12 million tons to U .S. shipments to China, but subtract 8 million tons to other destinations. That would give you a net improvement in the overall export outlook.”
Soybean Market Reaction
The reaction in the soybean market was rather muted as Brugler says it was a classic “buy the rumor, sell the fact” play. The market has known about the deal for some time and there were many sell orders about $11 on soybean futures that were hit when the market rallied initially.
Other Ag Purchases
Brugler says there were no other specifics regarding other ag purchases even though sorghum was mentioned in comments by Bessent and USDA Secretary Brooke Rollins.
Brugler doesn’t expect China to buy corn because they are a corn exporter and for wheat it will depend on the class of wheat they may need for baking. Cotton is a likely candidate for purchases as well as sorghum for their liquor industry. He also is downplaying any pork purchases due to China’s current over supply and beef was not specifically mentioned.
Is the Deal Binding?
Brugler says the devil is in the details of the agreement and it is yet unknown if the deal will have a commercial consideration clause like it did in the Phase One treaty that allowed China to get out of their purchase commitments.
Follow Through Buying in Cattle?
Cattle futures rallied on Wednesday in reaction to the border remaining closed to Mexican feeder cattle imports.
