There is no question as to who calls the tune in every sector or subject today domestically and geopolitically. A Truth Social comment from President Trump gets immediate attention. What he says may not make broad sense, but it makes sense to him and commands attention. Markets respond. His comment that he wanted China to add another 8 mmts of U.S. soybeans to their first tranche of purchases brought an immediate response from the market. For good reason, the trade thought that they were done buying for the time being as the Brazilian harvest took precedence. The background info was that China reportedly found out about Trump’s command that he wanted them to buy another 8 mmts of soybeans when we did. That would mean that they had no advance warning and thus taken no preparation, so it was a surprise to them too. Would they comply without reciprocal concessions and what might they be? They thought that they had complied with the previous agreement for 12 mmts and were ready to buy cheaper Brazilian soybeans. Market-wise, timing-wise this makes no sense. Yet, we have all come to know that what makes traditional sense may not be the relative factor as to whether this happens or not.

If China feels compelled for some good reason to follow through with a purchase of an additional 294 million bushels of U.S. soybeans, that would have a material impact on our balance sheet, which is why our market responded as it has. So far this has been isolated to the soybean market, but there is nothing to say that future Truth Social posts could not mention corn or cotton too. This is a wild card that only one person controls. The cotton market would very much like to have a similar posting from the president. It is very difficult to account for in a marketing plan. Whether China responds or not, he caused the soybean market to rally 80 cents, which many farmers took advantage of. That was better than subsidy ACHs, but only a few U.S. farmers will benefit. The rally could be timed perfectly for Brazilian farmers if the Chinese purchases of our soybeans do not happen.

While more U.S. origin soybean sales to China would tighten our balance sheet and increase prices, it has the opposite effect on Brazil. They are harvesting a record crop and there is a limit to how many soybeans that China can logistically acquire and manage. If they buy more from us now, that translates to buying less from them. We had thought that China was already full, because of U.S. soybean and Canadian canola purchases ahead of the Brazilian harvest glut. Price-wise it would make no sense to buy our soybeans at inflated prices while Brazil’s soybeans dip to a further discount. The basis differential between Brazilian and U.S. soybeans could set a record. The Chinese have historically followed the best market opportunity with their decisions and buying our soybeans at this time, under these conditions, would be the opposite of that. That seems like a lot to ask for, but the market is not ruling it out so nor can we. U.S. farmers have mostly sold out of old crop, which is where this rally is concentrated. It has not carried through to new crop so U.S. farmers miss the opportunity again.

Brazilian farmers were undersold on their sales so if their basis doesn’t deflate dramatically, this rally is a windfall for them. Commercials have to be thoroughly confused as to how to bid. I cannot believe that they would bid up Brazilian origin based upon the CBOT rally, but without having actual Chinese orders, buying soybeans at these prices would be full-on-risk here. Thank you to President Trump, with love from Brazil.

If China buys this many U.S. soybeans at a higher price, every other soybean buyer in the world that may have been thinking of buying from us, will buy from Brazil instead. That will dilute the impact that an additional Chinese purchase at this time, if it happens, would have on our carryover. Brazil’s soybeans go on sale. There is enormous collateral impact here. I have warned that Brazilian soybean farmers were at risk of a financial crisis, and the fallout from China buying our soybeans instead would hit them where it hurts. China owns a large soybean reserve supply so it is not as if they are in need of our soybeans. The world has an adequate soybean supply, so all this shift in source origin does is ignore or disrupt normal market signals.

This is an election year and there is likely to be another attempt at a USDA aid payment designated from Congress to farmers, ostensively to make up for losses but timed to buy votes. This mid-term battle will be the mid-term election of the century and the farm vote will be contested. This has been one advantage that U.S. farmers have had over Brazilian farmers who do not get such payments. Unfortunately, that is also because they have not needed them. They have added acres surpassing the U.S. in soybean production over the last couple decades without government aid checks. They have a lower cost of production and have been subsidized by the currency exchange of a weak real. The one who is going to want to keep them producing is China, who has made major investments in logistics and transportation infrastructure there. This will figure into their calculation as whether to comply with Trump’s command to buy more U.S. soybeans at what are at now higher prices. The original deal was reported to buy 25 mmts in future years, which while still a little less than their historical demand is enough to raise the floor given that a few months ago it was zero. Can China bail out Brazilian soybean farmers while still complying with U.S. purchases demanded by the president? Brazil will be able to find other buyers for cheap soybeans. U.S. farmers have become dependent on government aid and Trump’s market commands. There is opposition to this additional aid from those that think that farmers got what they voted for and should not be bailed out.