China Soybean Purchases (Phase One) Could Spur Accelerated Surges in Grains!
“Outlook 2020/2021 – A Dragon in a Corner…
06-29-20 – The coming months have the potential to see an escalating (and whipsawing) of tensions between the US and China as well as between China and the rest of the world (India, Asian countries in the South China Sea, Europe, etc.). Ultimately, that could result in some form of sharp repercussion from China, once they feel they are out of other options.
There are at least two cases where China’s ongoing actions could ultimately trigger global backlash. They are in Hong Kong and the South China Sea. China’s new Hong Kong national security law escalates its suppression of conflicting voices in Hong Kong (while lessening the ‘semi-autonomous’ status of that city).
But that is just one brewing conflict…
Recent attacks (either sinking or intimidating) against ships from Japan, Vietnam & Malaysia – by China in the South China Sea – have raised tensions in a strategic waterway. Suspected cyber-attacks against Australia, military aggression against India, and intimidation toward the Philippines have compounded the growing antagonistic nature of China toward many nations.
So, how can China placate some of the global backlash and delay any serious consequences?
Money.
The U.S. has been notably subdued in the response to these aggressive acts. According to some speculation, that is closely linked to a struggling reelection campaign (and at least one US/China bargain revealed in a recent book release).
So, there are likely to be signs of cooperation, particularly with the Phase One trade deal between the U.S. and China, to placate growing tensions and try to keep accusers at bay.
The last couple years have shown that Xi Jinping knows how to ‘play’ the US administration to his advantage whenever things are getting a little too confrontational.
John Bolton’s recent book release is the latest revelation of a recurring theme expressed by 4-star generals, multiple world leaders, and past administration officials – explaining that it can be very easy to manipulate this administration with token maneuvers or just plain flattery.
If that speculation is accurate (others can continue to debate that), the following 2020 ‘dots’ might be more closely connected than initially thought…
– China agrees to purchase increased amount of US soybeans as part of Phase One deal.
– Trump repeatedly goes on record – before and after deal is struck – emphasizing this is key to his reelection strategy to win over heartland farmers.
– Bolton’s book corroborates that exact message and recounts conversations between Jinping and Trump in which Trump tells Xi he needs to buy more soybeans to help Trump’s re-election.
Is this just the ranting of a disgruntled ex-employee?
– China agrees but does little, in first 4 – 5 months of 2020, to fulfill that promise. Why? It is certainly not for lack of need, since they purchased large amounts of Brazilian soybeans during that time.
– Immediately before and after China takes assertive moves with Hong Kong – which are a bold step and quickly spurred outrage from US Senators on both sides of the aisle – China ramps up soybean purchases to assuage President Trump.
– As a result, little is said publicly to hold China accountable for this latest maneuver.
– Is there a connection?
If so, look for soybean purchases and other ’incentives’ to be used as manipulative fodder in the coming months, as China continues to intensify its aggressive movements in key areas around the globe – while hoping to delay US reactions until it is too late…
Soybeans, Corn & Wheat remain in a base-building phase that has been projected to lead to sizeable rallies… On June 22 – 29, Soybeans and Corn triggered intermediate buy signals (see Weekly Re-Lay) in preparation for a July surge…
On a continuous basis, Soybeans dropped from the June ‘16 peak into May ‘19 – when they bottomed. From there, they experienced an initial ~8-month rally (into late-Dec./early-Jan. ‘20)…
There is also an overlapping ~8-year cycle that has governed Soybeans throughout this entire 40-Year Cycle (since 1980)… There is even an overlapping ~16-year cycle that incorporates the 1972/73 parabolic surge in Soybeans, when they went from ~300 to ~1290 – more than quadrupling their value…
Weekly cycles have been corroborating this, projecting an initial surge into July and an overall advance that could last into Sept. ’20. Leading into those peaks, Soybeans were/are expected to signal a much larger and stronger rally…
The intriguing aspect of this potential is how one giant (potential) fundamental has been shaping up to validate these cycles and technicals. Since the beginning of 2020, part of the agricultural focus has been on Phase 1 of the trade deal between the U.S. and China – involving China’s commitment to purchase an additional $32 billion of agricultural products (above 2017 levels) in 2020/2021.
Much of that focus has been on Soybeans (and pork). As of late-June, China is significantly behind on fulfilling that commitment so one of two alternatives could occur – either China fails to fulfill their commitment or they seriously ramp up purchases in the coming months.
Based on cycles & technicals in Soybeans, my ‘bet’ is on the latter alternative.
Of course, Soybeans could surge for any number of additional reasons – not just potential Chinese purchases – but that appears to be the most obvious from the current vantagepoint. So, in keeping with Occam’s Razor, the simplest answer or explanation is often the correct one.
(The good news is that technical trading does not warrant a correct assumption of the driving fundamental. I could be completely wrong on what drives a rally in Soybeans, but that doesn’t matter if the rally materializes as anticipated.)
Other fundamentals corroborating this potential include Brazil’s falling Soybean stocks and rising currency. Both factors are likely timing the culmination of Chinese purchases of Brazilian soybeans (which normally occur in Feb. – July) and China has already been increasing purchases of US Soybeans in recent weeks.
Since they still have a lot of ground to make up (with respect to the Phase 1 Trade Deal), and their other main source of Soybean purchases is rapidly diminishing, the potential for a Chinese surge in Soybean purchases – and resulting surge in prices – is growing as the markets enter the time when an accelerated advance (or multiple ones) is likely.
From a technical perspective, Soybeans could rally as high as 1200/S and return to their mid-2016 peak… Corn tested and held major multi-year support around 300/C (325.0/CZ) and was/is also expected to surge in July.
Wheat has consolidated after testing and holding 3 – 5 year resistance near 600/W – in Aug. ’18, Jan. ’20 & Mar. ’20. It needs to break above that level to trigger a more accelerated advance…
1 – 3 month and 3 – 6 month traders could have entered long positions in Nov. Soybeans futures at…
1 – 3 month and 3 – 6 month traders could have entered long positions in Dec. Wheat futures down to [reserved for subscribers]… TRADING INVOLVES SUBSTANTIAL RISK”
Grains are poised for accelerated advances as they enter the culmination/crescendo of a 40-Year Cycle of Drought & 80-Year Cycle of Agriculture (2016 – 2021) that have had dramatic impacts on crop raising and food prices throughout America’s history. The potential for massive Chinese Soybean purchases is corroborating that outlook – reinforcing projections for an increasingly challenging period for crops and food prices leading into 2022 (when a shift to Deluge Cycles is projected for 2022 and beyond).
~11-Year, ~40-Year & ~80-Year Cycles all converge in 2021/2022 and pinpoint the expected transition of natural, geopolitical and market cycles, at the same time many food cycles also culminate. Inflationary cycles are concurring.
On a 1 – 3 year basis, Corn has a corroborating 3-year low (July 2007) – low (Jun 2010) – high (July 2013) – high (June 2016) – high (May/Jun 2019) – high (May/June 2022) Cycle Progression – projecting a 1 – 2 year peak – that was reinforced by a 6 – 12 month peak in May/June 2019.
Wheat has a ~6-year low (2004) – low (2010) – low (2016) – high (2022) Cycle Progression that is being reinforced by a ~33-month low (3Q 2016) – low (2Q 2019) – high (1Q 2022) Cycle Progression. Soybeans have an ~8-month Cycle Progression that portends future peaks in Sept ’20 and then ~May ’21 & ~Jan ’22.
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.