Last year, when the Donald Trump administration announced new tariffs on Chinese goods China retaliated by imposing higher tariffs on American goods. The most affected were agricultural products like soybeans and corn. China also stopped buying these products because they were more expensive than those from other countries. As a result, the low demand and increasing inventories led to a sharp decline in the price of soybeans. The price declined from more than $10 a bushel to a low of $8.12.
In the past one month, the price of the beans has increased sharply as talks between United States and China begin. There is also evidence that China has started buying more beans from the US. Today, Bloomberg reported that Chinese buyers have increased the purchases. On Monday, the country bought about 11 ships of soybeans from the US. The report continued:
China last made a big purchase of soybeans before Christmas, scooping up about 1.2 million metric tons for delivery by Aug. 31, according to the U.S. Department of Agriculture. That was on top of 1.56 million tons in the week ended Dec. 13. China’s top food company, Cofco Corp., said it made two purchases, while Sinograin said it bought in batches “to implement the consensus achieved by state leaders.”
Therefore, this week, soybeans will be a major agricultural commodity to watch as the two countries engage in trade talks. A deal between the two countries will likely lead to increased demand and more stability for the commodity. An impasse will lead the price to decline.
However, there is also an issue of seasonality. The second biggest producer of soybeans in the world is Brazil. The country’s season and that of the US are different, which means that the demand for the crop from China will not be affected as much.
In the past five days, the price of soybeans has moved to a high of $9.28. On the five-day chart below, the price of the commodity has continued to remain along the 14-day and 28-day EMA. At the same time, the RSI has moved from the overbought level of 50 and has moved to a low of 51. In the coming days, traders will pay close attention to the ongoing talks in Beijing.