Crucial crop: Farmer Jason Bean fills a soya bean container in Gideon, Missouri, US. The US-China trade war has rattled the soya bean market. Picture: REUTERS
Crucial crop: Farmer Jason Bean fills a soya bean container in Gideon, Missouri, US. The US-China trade war has rattled the soya bean market. Picture: REUTERS

Chicago — On Wednesday, China made its first major purchases of US soyabeans since President Donald Trump and his Chinese counterpart Xi Jinping struck a trade war truce earlier in December, providing some relief to US farmers who have struggled to find buyers for their record-large harvest.

In an interview on Tuesday, Trump said the Chinese were already buying a "tremendous amount" of US soyabeans and would also soon cut tariffs on US vehicles.

The purchase of more than 1.5-million tonnes of beans is the most concrete evidence yet that China is making good on pledges that the US government said Xi made, when the two leaders met on December 1 and agreed to a 90-day detente to negotiate a trade deal.

Global markets had whipsawed since then, with little sign that China was making the substantial purchases of U.S. farm, energy and industrial products that Trump said would start immediately after the meeting.

Investors have been sceptical about the progress made toward ending a trade war that has disrupted the flow of hundreds of billions of dollars of goods between the world's two largest economies. The arrest in Canada of a top Chinese executive from technology giant Huawei Technologies also stoked concern in markets that the trade war could worsen.

In another sign of concessions to the US, China appears to be easing its high-tech industrial push, dubbed "Made in China 2025," which has long irked Washington.

China has also told state oil trader Unipec to buy US oil, and the US is expecting Beijing to cut tariffs on US-made vehicles and car parts.

Back in business

The soyabean purchases by Chinese state-owned companies, valued at more than $500m, will do little to reduce the $43.1bn US trade deficit with China, which Trump wants to narrow over the long term.

The purchases will, however, provide a goodwill gesture before the next round of US-China talks to change their terms of trade. The United States has a long list of complaints against China on intellectual property, forced technology transfers and industrial subsidies.

The soyabean exports will also provide relief to U.S. farmers. Soyabeans are the single most valuable US agricultural export product and China bought 60% of those exports in 2017, worth $12.25bn.

But China has been out of the market since Beijing imposed a tariff on US soy imports in July, pushing prices of the oilseed to decade-lows.

Benchmark soyabean futures on the Chicago Board of Trade hit their highest level since midsummer on Wednesday.

Chinese state-run firms Sinograin and Cofco bought the soyabeans, said one European trader. The sellers included global agricultural merchants Cargill, Louis Dreyfus Company and US farmer-owned agriculture company CHS.

The trader said China was seeking to buy a total of 2.5-million to three-million tonnes of US soyabeans.

Cargill and CHS declined to comment. Dreyfus did not immediately respond to requests for comment.

One US trader with direct knowledge of the deals said Chinese state-owned firms bought at least 12 cargoes for shipment from January to March. Another trader with direct knowledge of the deals and one who sells beans to exporters involved said around 30 cargoes had traded by Wednesday afternoon.

"China was buying right out of the gate this morning. It looks like we're back in business now," the first US trader said.

The soyabeans are expected to be shipped mostly from grain terminals in the US Pacific northwest, the most direct route to Asia, the US traders said.

Just a start

US farmers welcomed the deals. The White House this week delayed additional payments from a $12bn aid package for farmers stung by the trade war because it expected Beijing to resume buying US soyabeans.

US farmers stored soyabeans after the fall harvest, instead of selling them to grain traders and processors, because of low prices and lack of alternative buyers.

Commodities traders and analysts said soyabean prices may struggle to build on Wednesday's gains unless China buys considerably more soyabeans.

"If this is all we're going to get, it is a whopping disappointment and we are adding at least 200-million bushels to our soyabean stocks," said Ted Seifried, chief market strategist for Chicago-based Zaner Ag Hedge. "We need follow-up sales in short order in order to keep the momentum higher in soyabeans."

The 25% tariff on US soyabeans Beijing imposed on July 6 remains in effect. The higher duties discouraged private Chinese importers from making purchases as Brazilian soyabeans, which are not subject to the tariffs, are less expensive.

China this year has relied on Argentina and top exporter Brazil for most of its soyabeans used to feed the world's largest pig herd. Brazil will start harvesting its next crop in early 2019 — leaving a window for the US to sell.

"The Chinese evidently want the beans quickly as they have not been able to cover all their needs in South America," the European trader said.