Esse texto é de autoria de Angie Setzer, consultora de Grãos da Marex US.

O Footnotes é postado todo sábado no portal Brz Report (plataforma da Agrinvest onde você encontra basis, trades, fluxo das commodities, preços do mercado físico, cobertura da China e muito mais).

Someone asked me the other day to name something that keeps me up at night. And while there are plenty of things competing for that title lately, this week it’s the situation in China and what it could mean for their imports in the months ahead.

From whether they can meet President Trump’s recently promised additional 8 mmt or 294 million bushels of soybean purchases, or the 25 mmt in new crop, to one of the wettest falls on record, there is a lot happening. Some of it, like US soybeans imports have been widely discussed, while other developments, like nearly 1.2 billion bushels of corn thought to be contaminated with toxins have received far less attention.

This week, I want to dig into what’s happening in China across the grain space.

Soybeans

As we saw following the late-October meeting between President Trump and President Xi, funds are willing to be aggressive buyers of soybean futures when there is talk of large soybean purchases in the works by China. This week President Trump posted on TruthSocial that he and Xi had spoken on the phone, discussing many pertinent things.

One of the things mentioned, according to Trump, was the consideration of an additional 8 mmt of soybean purchases on top of the 12 mmt of old crop already promised. The futures market did not wait for any type of confirmation from China. Instead, it tore off higher, working to retrace much of the range from the November rally.

Many in the trade were caught off guard by the announcement, with many asking if it was even realistic. For me, when answering this question, I can only look at history and my thoughts on the current geopolitical and economic landscape as a guide.

First things first, as evident by the initial chunk of purchases made by China, they are willing to make the administration happy by buying some agricultural commodities. But this isn’t just about making the administration happy, if you ask me, it’s a benefit to them as well.

An article published in the South China Morning Post earlier this week outlined a shift in how China’s government is thinking about food security and import diversification. The article not only mentioned a desire by China’s government officials to “deeply participate” in agricultural trade, it also seemed to indicate that China was likely to maintain a larger level of imports from the US as a way to diversify those supplies.

We have seen signs of this desire recently with a slowdown in the offloading of South American bean cargoes. This slowdown led to short-term supply pinches and improved crush margins in the nearby and deferred timeframes. The slowdown in movement from ports to the interior opened the door to better government reserve auction clearance rates when they were held earlier this winter as well. This is important as many of the soybean purchases made by China are likely to be done by government entities for reserves.

Some feel that China may work to spread out their imports more, taking in the promised 25 mmt in future marketing years with ease. This would work with many of their recent proposals aimed to improve food security, especially if they are looking to bolster reserve supplies.
As for this year, is it possible China could add an additional 8 mmt or 294 million bushels of purchases beyond the initial 12 mmt? Sure. But it will likely cost the US a large chunk of the rest of the world's business and hurt Brazilian agribusinesses and farmers in the short term.

For farmers in Brazil, this uncertainty couldn’t come at a worse time. Like their US counterparts last October, the slowdown in China bean purchases has started to cause concern amongst merchandisers. Basis continues to take the biggest hit, with farmers across Brazil seeing basis weaken almost penny for penny midweek when the initial rally hit.

The Brazilian farmer has a tremendous amount of soybeans they will need to sell in the coming weeks as well, compounding the issue as the market waits for supplies to get cheaper.

It does feel important to note in all of this though, that if China does come in and make an additional 8 mmt of US purchases, it is likely it will be spread out throughout the remainder of the marketing year.

When looking at it in weekly blocks, the purchases would have to amount to around 300,000 tonnes or just over 4 cargoes a week. On a monthly basis, it breaks down to around 1.6 mmt or just under 23 cargoes in a month. This would take some market share from Brazil, yes but not necessarily enough to create panic, as they will likely pick up from other buyers focusing on price only when they buy.

When it comes to the US balance sheet, if they were to follow through, we would have to see adjustments made to the other buyers of the world, likely limiting the overall impact. It would not surprise me though, if we were to see signs they were willing to get the extra bushels covered, that the USDA would be quick to put the 60 million bushels of exports they just cut from their outlook in January back in by March.

For China, these decisions aren’t being made on price alone. When viewed through the lens of food security, reserves and broader trade goals, paying up for additional US soybeans may simply be a cost they are willing to absorb.

Continue reading in the: Friday Footnotes