Why Is China Buying US Soybeans? Trump Has Called The Largest Number In History

Grain harvest illustration (Charles Ricardo / Pixabay)

JAKARTA - China buys soybeans from the United States (US). The contracting has a direct effect on the price of soybeans in the international market. Indonesia is affected. Soybeans are scarce. Prices of tofu and tempeh have risen.

China has long been a supplier that dominates soybean purchases from the US. On September 17, China agreed to buy 9.89 million tonnes of US soybeans. The transaction took place between September 2020 and August 2021, according to the US Department of Agriculture.

Of that total, 3.27 million had been ordered in August 2020. Meanwhile, another 2.07 million were carried out in September 2020. Citing Nikkei Asia, China bought about 40 percent of soybeans grown in the US.

The increase is likely intended to highlight China's economic impact, especially when US President Donald Trump is campaigning ahead of the US elections in November 2020. China is so special in this soy transaction.

China can choose when the delivery will take place, even cancel it. It happened before. China once withdrew from purchasing around 800 thousand tons of soybeans in February 2019. This has triggered a decline in prices.

China can use the order as a means of countering US trade pressure as well as taking advantage of other hot spots of diplomatic conflict, such as the Hong Kong National Security Act, sanctions against Huawei Technology, and state separation on cutting-edge technology.

The biggest order in history

US President Donald Trump called the Chinese order the largest soybean order in history. That history was recorded under a Phase I trade deal between the US and China in January 2020.

The details of the Phase I deal are about exports of US food, agriculture and seafood products to China. Meanwhile China is ending coercion or pressure on foreign companies to transfer technology to Chinese companies.

Other deals in Phase I are to affirm US opposition to currency manipulation and China's commitment to purchase at least US $ 200 billion in US export commodities over the next two years.

Back in June 2020, Phase I trade is not the only reason China is buying up US soybeans. According to StoneX Group, Inc.'s Chief Commodity Economist. Arlan Suderman there is another possibility why China increases its purchases from the US.

It could be that China is also buying out of necessity, instead of buying to fulfill Phase I trading promises. "They are currently driven primarily by fear; fear of shortages," Suderman.

"They believe they are handling the coronavirus better than anyone in the world, and they have to close their supply lines. They are even closing their ports," he said.

"Right now, they are more afraid of shortages due to the corona virus and the impact on incoming commodities," Suderman.

Suderman said the Chinese buying trend signaled that China would stockpile products to protect the country from slowing shipments and product movement in the future.

"We saw a big wave of shipments (to China), and now that they have bought most of the Brazilian supplies, they have turned to the US," Suderman said, quoted by AG Web, Tuesday, January 5.

Apart from soybeans, the world's top commodity importer also imports US corn, pork and poultry. The US even noted that China made the biggest weekly purchase of beef in September 2020. US soybean exports to China usually increase in the fourth quarter after harvest and because supplies from Brazilian exporters are running low.