Those who ignore the intersection of business and politics, “risk finding themselves on the wrong side of history,” Scott McDonald, CEO at Oliver Wyman, warned in the Harvard Business Review in April 2017, three months after President Donald Trump took office.
Those in the soybeans trade probably agree, and are moving quickly to chase up prices of the grain in anticipation of a ramp-up in Chinese buying if former Vice President, Joe Biden wins the U.S. presidency.
At the time of writing, the winner of Tuesday’s presidential race between Trump and Biden had not been decided. But Chicago-traded soybean futures were headed for their strongest week in five. The gains were built over three days as vote counts from the election increasingly showed Biden could take the White House.
Why soybeans and China, and why Biden?
Well, anyone unaware of the history between Trump and China—from his tariffs on Beijing to the reprisals by the Xi government and the resultant disruption to grains and other global markets—would have been living under a proverbial rock. Those who require no brief on it, would also know that if Biden is the next president in the U S he will probably roll back those restrictions and allow a freer flow of trade.
To be fair to the Trump administration, it did manage to get China to buy regular amounts after the signing of the Phase One deal between the two countries in January.
Just in early September, Chinese buyers booked deals to buy 664,000 tonnes of soybeans—the largest daily total since July 22—for delivery in the 2020/21 marketing year, the U.S. Agriculture Department reported.
Yet, Chinese soybean purchases in the first half of the year totaled just $7.274 billion, according to U.S. government data. Trump’s Phase One deal had called for $36.5 billion in annual purchases. Some of the lag can definitely be blamed on the coronavirus pandemic and its destructive impact on grains.
Chinese Throwing Caution To Wind, Scooping Up US Soybeans
This week, the Chinese seemed to be throwing all caution to the wind and scooping up soybeans and other U.S. farm products including corn.
Jack Scoville, grains analyst at the Price Futures Group in Chicago, said:
“Soybeans and products closed higher this week on hopes for more Chinese demand with a Biden victory, despite the return of the coronavirus to the U.S. and Europe. China has not appeared in the daily sales announcements from USDA in a couple of weeks and the market was feeling the loss.”
“China still needs to buy grains for crushers to turn into feed, and appears to have bought what was necessary for their reserve. But ideas that a Biden victory would mean better intergovernmental relations with China and therefore increased demand for U.S. soybeans.”
Dan Hueber, author of the Hueber Report for grains out of St. Charles, Illinois, concurs, saying for U.S. soybeans:
“China remains at the top of the leader board with purchases of 810,700 metric tonnes, or 53%, of the total”.
Hueber added:
“Soybean bulls have done it again as we have now extended this advance into higher highs.”
Chicago soybean futures jumped to their highest in more than four years on Thursday, rising for a third consecutive session, helped largely by strong demand from top buyer China, as well as dry weather in other growing areas for the crop in South America.
For the week, the front-month contract January contract for Chicago soybeans, January, was up more than 4% on the week, hovering at $11 a bushel.
Disclaimer: Barani Krishnan does not have a position in the commodities or securities he writes about.