China on Wednesday made its first major purchases of US soybeans since President Donald Trump and his Chinese counterpart Xi Jinping struck a trade war truce earlier this month, providing some relief to US farmers who have struggled to find buyers for their record-large harvest.
Trump told Reuters in an interview on Tuesday the Chinese were already buying a "tremendous amount" of US soybeans and would also soon cut tariffs on US autos.
The purchase of over 1.5 million tonnes of beans is the most concrete evidence yet that China is making good on pledges 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 US farm, energy and industrial products that Trump said would start immediately after the meeting.
Investors have been sceptical about the progress made towards 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 Co Ltd also stoked concern in markets that the trade war could worsen.
In another sign of concessions to the United States, 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 United States is expecting Beijing to cut tariffs on US-made autos and car parts.
BACK IN BUSINESS
The soybean purchases by Chinese state-owned companies, valued at more than $500 million, will do little to reduce the $43.1 billion 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 soybean exports will also provide relief to US farmers. Soybeans are the single most valuable US agricultural export product and China bought 60 percent of those exports in 2017, worth $12.25 billion.
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 soybean futures on the Chicago Board of Trade hit their highest level since midsummer on Wednesday.
Chinese state-run firms Sinograin and Cofco bought the soybeans, said one European trader. The sellers included global agricultural merchants Cargill Inc, Louis Dreyfus Company and US farmer-owned agriculture company CHS Inc .
The trader said China was seeking to buy a total of 2.5 million to 3 million tonnes of US soybeans.
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 soybeans 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.
"This is a start," said Valley City, North Dakota farmer Monte Peterson. "Any business that we can put together we're pretty grateful for."
The White House this week delayed additional payments from a $12 billion aid package for farmers stung by the trade war because it expected Beijing to resume buying US soybeans.
US farmers stored soybeans 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 soybean prices may struggle to build on Wednesday's gains unless China buys considerably more soybeans.
"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 soybean 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 soybeans."
The 25 percent tariff on US soybeans Beijing imposed on July 6 remains in effect. The higher duties discouraged private Chinese importers from making purchases as Brazilian soybeans, 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 soybeans 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.