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Can China’s floods help to reconcile the US-China trade relationship?

 In Newsletter

Issue 138
Assets Covered: Soybean Futures Continuous Contract, CBOT Corn Futures
Countries Covered: China

 

 

This summer has seen dramatic storms in China with the worst flooding in more than 20 years. Cropland the size of the US state of West Virginia flooded with an estimated $21bn of economic damage.

 

40,000 buildings collapsed. 7,100 hogs were killed. And the summer grain harvest failed in a large part of the Yangtze River Basin.

 

Flooding came toward the end of the growing season, destroying rice, corn, soy and other crops in parts of the Yangtze River Basin, where 30% of China’s corn and 40% of its soybeans are grown. The floods were so alarming that the price of corn in China rose 20% y/y and soybeans rose 30% ytd in July, the fastest pace since 2015.

 

Enter American agriculture. Although China committed to purchases of $32bn of US agriculture under Phase 1 of the US-China trade agreement, concerns over compliance have plagued bilateral relations in 2020. However, weather woes seem to be a major driver of new purchases of US agriculture. China’s commitments for imports of US corn, soybeans and soy oil are up 167%, 324% and 234%, respectively.

 

US Net Export Sales August 2020

 

This demand from China should help US corn and soybean prices, which have been down on USDA estimates of record crop yields this season. While we have expected falling corn and soybean prices in August, we do expect higher prices to emerge in September/October.

 

Soybeans Futures Continuous Forecasts August 2020

Soybean Futures Continuous Contract (S1) forecast through December 2020
CI Futures generated this chart. Book a demo to see it in action.

 

 

CBOT Corn Futures August 2020

CBOT Corn Futures (C1) forecast through December 2020
CI Futures generated this chart. Book a demo to see it in action.

 

While the floods in China are tragic, they have forced détente. China and the US are important trade partners, and US agriculture capacity has made it an indispensable source, even in the darkest days of the trade war. Hopefully, a new dawn can emerge.

 

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