China is bringing back soybean diplomacy as the world’s second-largest economy seeks closer ties with the US ahead of a meeting between President Xi Jinping and his American counterpart Joe Biden.
The Asian nation, the world’s top soybean importer, bought more than 3 million metric tons of the commodity from the US just this week, a volume that surprised the market. The move is a gesture of goodwill ahead of Biden-Xi talks scheduled to take place in San Francisco next week, according to people familiar with the matter who asked not to be named discussing governmental decisions.
This isn’t the first time China used the soybean for geopolitical leverage. Beijing bought and halted purchases of US supplies of the oilseed — used to make animal feed and cooking oil — several times throughout Donald Trump’s trade war. But recently, China has been scooping up cheaper Brazilian supplies instead.
As China seeks closer ties with the US — with various meetings between the two nations taking place recently — soybeans are again taking center stage. Just last month Chinese grain buyers including Cofco International Ltd. and Sinograin signed 11 agreements with crop traders such as Archer-Daniels-Midland Co., Bunge Ltd. and Cargill Inc. during a forum in Iowa, the first such deal since since the Trump-era trade dispute.
“There has certainly been a lot of ‘shuttle diplomacy’ over the past six months or so between the two countries,” said Stephen Nicholson, a global strategist for grains and oilseeds at Rabobank, one of the top lenders to the agriculture industry. “And of course, Biden is going to meet with Xi next week.”
Spokespeople for the Chinese embassy in Washington didn’t immediately comment. The White House declined to comment.
The latest purchases, which surprised the market this week, were led by state-owned Sinograin and will help bolster Chinese inventories. They also come the same week as Treasury Secretary Janet Yellen hosted People’s Republic of China Vice Premier He Lifeng and ahead of the Nov. 15 Biden-Xi meeting on the sidelines of next week’s Asia-Pacific Economic Cooperation forum.
China bought American soybeans even though they are more expensive than Brazilian supplies, and processing margins are weak. The nation is purchasing more than it needs for domestic use, signaling it’s seeking to build stockpiles, said Alex Sanfeliu, head of world trading at Cargill, the world’s largest agricultural commodities trader.
“Xi’s visit is the only logical explanation why Sinograin would pay a big premium over Brazil beans,” said Ken Morrison, an independent commodity trader in St. Louis. “Sinograin has a dual role; they crush beans and they manage reserve stocks for the government. Crushing is very competitive in China as it is everywhere. Crushers don’t pay above-market prices.”
Purchase Politics
While there is “a little politics” to the purchases, US soybeans are also better to store than supplies from Brazil, said Dan Basse, president of Chicago-based consultants AgResource Co. That’s because Brazilian soybeans usually contain too much moisture and have a higher soyoil content, he said.
There are also some concern about the weather in Brazil, and long lines at the country’s ports. Falling prices in the US may also have lured buyers, said Chris Robinson, managing director of agriculture and commodities at TJM Institutional Services in Chicago.
“It certainly looks like the Chinese saw that six-month low as an opportunity,” he said.
China is seeking also closer ties with the Biden administration ahead of the 2024 presidential elections, two of the people said. There’s some anxiety in the country about the possibility of Trump returning to power when the Chinese economy isn’t as robust as it was during the trade war, the people said.
“The Chinese are pragmatic and they know in the long run, the US is too valuable of trading partner to leave behind,” Rabobank’s Nicholson said.
--With assistance from Michael Hirtzer, Tarso Veloso and Gerson Freitas Jr..
Author: Isis Almeida, Jennifer Jacobs and Jenny Leonard