The recent WASDE report created barely a ripple in the markets, and now traders are trying to figure what’s going on. The November report is often a bit of a snoozer, and this year is no exception, but the underlying political currents make this year a bit harder to decipher.
RealAg Radio host Shaun Haney checked in with Ted Seifried, of Zaner Ag Hedge, to see why the reception to the WASDE report was so ho-hum. “Five minutes after that report came out, if you looked at the board, you could hardly tell we had a report here today. It wasn’t a market mover by any means,” he says.
What has the the market and traders frozen? Likely trying to figure out what’s happening in trade talks between the U.S. and China. Over a week ago, U.S. President Donald Trump suggested that China would “immediately” start buying soybeans.
Seifried says, “We are a deer in the headlights waiting to find out what happens.” He continues, “If this sale doesn’t end up big enough then this could be very disappointing. So, we could be sharply lower, but no one wants to come in and sell it right now because who knows what is going to happen.”
The actual numbers are important to know. Seifried says, “China could use five to 10 million metric tonnes of soybeans to get them through now until when Brazilian comes on line.”
EXCLUSIVE: Chinese state-run firms buy more than 500,000 tonnes US #soybeans -two US traders tell @Reuters
EXCLUSIVE: China’s soybean purchases worth at least $180 mln, first since Trump-Xi agreed #trade war truce at G20
— Tom Polansek (@tpolansek) December 12, 2018
The market needs China to do more than buy some soybeans. The market needs China to decide it wants to buy a lot of soybeans. “We need them to buy another 10 million metric tonnes just to catch us up to where the USDA is now. So, if China buys only what they need this is going to be a big disappointment and it doesn’t really justify the prices that we’re at,” says Seifried.
This is where politics really step in. “If China wants to make a statement and say they are really committed to getting a deal done and working with us to bridge the trade gap as well as fixing the intellectual property concerns that we have, well then, they could come in any a larger amount in order to put into their state stocks,” Seifried says.
The number would be three times the current needs of China, but possible under these circumstances.
Seifried goes on, “So if they came in and bought thirty million tonnes for example, that would change the soybean balance sheet dramatically and all of a sudden we are underpriced.”
Something else to pay attention to is what is happening with African swine fever in China. There have been very few cases reported lately but China is buying more than expected amounts of U.S. hogs. The two pieces of information seem to be contradictory which means there may be another shoe to drop yet.
Many of these questions will have answers by the time the January WASDE report comes out. So, if there any surprises in that report the reaction then could be anything but “ho hum”.
(Hear Shaun’s interview with Ted Seifried below)