Soybean Market: Brazil’s New Pres. May Be Asset to U.S.-China Trade Deal – DTN

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Writing on Thursday evening, I have to pause and reflect on several significant market events that have already happened this week. First, Brazil elected 63 year old Jair Bolsonaro as their new president, a candidate that The U.K.’s Telegraph dubbed as the “Trump of the Tropics.” 

Yes, Mr. Bolsonaro the candidate sounded a lot like Donald Trump on the campaign trail, appealing to right wing sentiments and making a strong plea for law and order in a country that appears to be growing weary of its reputation for crime and corruption. Of interest to U.S. grain markets was how hard Bolsonaro railed against Chinese investment, often quoted as saying, “the Chinese are not buying in Brazil, they are buying Brazil.”

Read “Think of China as a giant sub-prime lender in Latin America” in The Economist, November 1, 2018 at:

https://www.economist.com/…

Brazil – China

From a U.S. perspective, it will be interesting to see how the dance now develops between Brazil and China. For perhaps the first time in a major way, China’s pattern of colonizing resources through investment is encountering a public relations problem in a nation that China desperately needs as a source of protein.

As Reuters reported last week, Bolsonaro is concerned about China gaining too much control, but Brazil’s agribusiness interests are more cautious, understanding they have benefited from China’s investments and access to China’s markets.

Read “Bolsonaro’s anti-China rants have Beijing nervous about Brazil” by Jake Spring, October 25, 2018 at:

https://www.reuters.com/…

Coming at a time when the U.S. and China are deadlocked in trade negotiations, it is fair to wonder if China is more than a little nervous about the prospect of Brazil’s new president having so much admiration for President Trump. Until now, the U.S. and Brazil have been seen as competitors that China could play off each other. There has not been public discussion yet of the U.S. and Brazil finding common ground to counter China’s colonizing influence, but stay tuned as the possibilities became more open this week.

On a more humorous note, Bunge’s CEO Soren Schroder poked a stick into a hornet’s nest on Wednesday, saying that North American farmers are proving “very stubborn holders of their record crop,” Dow Jones reported. Regardless of what Schroder may have intended, it sounded a lot like whining to soybean producers facing their lowest cash prices in 11 years, and coming from the head of a company that just reported $376 million of third quarter earnings.

Trump Tweet Moves Market

The surprise of the week happened shortly after 9 a.m. CDT on Thursday when President Trump tweeted that trade discussions with China were “moving along nicely” and meetings were being scheduled at the site of the G-20 meeting in Buenos Aires on Nov. 30. As an observer of markets, I had to pause and wonder if there was any substance to the tweet or if it was just a political ploy before next week’s election to inject some hope into the markets. 

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The soybean market wasted no time responding to the tweet, and the January contract finished up 30 1/4 cents on the day. Realizing that much of Thursday’s gain was short-covering in a market that had been hypnotized by its own bearish mood, I’m wondering how much of Thursday’s gain prices will be able to hang on to by the time we reach the G-20 meeting at the end of November.

More objectively, the cash prices in DTN’s National Soybean Index have done well to hold above their September low, which also happens to be their lowest price in 11 years. As discouraging as soybean exports have been so far in 2018-19, and in spite of some “boy cried wolf” episodes declaring progress in this year’s trade war with China, my cynical self doesn’t want to admit it, but one of these days the U.S. and China may strike a deal on trade.

If or when they do, it will be legitimately bullish news for U.S. soybean prices. And who knows, the election of Jair Bolsonaro in Brazil may prove to be a key piece of the puzzle that this trade deadlock needed. Weeks like this make me think Mark Twain had it right: Truth is stranger than fiction.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow him on Twitter @ToddHultman

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