China's soy-buying spree may signal prudence before US talks

[SINGAPORE] Chinese firms have been snapping up US soybeans this week, but don't mistake this as a sign of buyer confidence in upcoming trade talks.

The companies, which received a fresh 2 million-ton quota from Beijing to import American beans free of retaliatory tariffs, have been seeking soy every day so far. That's likely because they want to rush through orders in case the talks fail and imports are halted, said Darin Friedrichs, a senior analyst at INTL FCStone's Asia commodities division.

"The Chinese soybean purchases are a necessity and may be a sign that the crushers want to get these grades in quickly because things could change on talks," Mr Friedrichs said.

The wariness of commodity traders is perhaps understandable given the whipsawing in relations between US President Donald Trump and his counterpart Xi Jinping over the past year.

Chinese firms were issued tariff waivers in July as Beijing offered Washington an olive branch, only to see shipments stopped about a month later after talks fell apart. Top negotiators from the two countries are expected to meet in Washington on Oct 10.

The purchases may also be because it makes financial sense right now. Margins on crushing US soybeans in China are higher than those of rival Brazil thanks to the lower prices of American soy when retaliatory tariffs are removed.

Chinese state-owned and private firms bought at least six cargoes of US soy, equivalent to about 400,000 tons, said people familiar with the purchases, asking not to be identified because the information is private. That's on top of 12 to 15 cargoes, or 1 million tons, purchased earlier this week.

No one answered calls to China's commerce ministry during the National Day holiday, and a fax seeking comment wasn't immediately responded to.

November soybean futures were up 0.3 per cent at US$9.16 a bushel by 9.05am in Chicago. Prices have gained 3.7 per cent so far this week.

BLOOMBERG