China, the world's top soybean consumer, has turned to Brazil and other exporters for its supplies since slapping tariffs on U.S.-origin soybeans. The trade tension has weighed on prices, with soybeans losing more than $2.50 per bushel — roughly a quarter of their value — between the 2017 peak in March and the trough in September.
As Beijing and Washington endeavor to end the dispute, prices have rallied about 80 cents. That essentially signals to farmers that they shouldn't cede too much acreage to other crops at the expense of soybeans, says Smithmier. However, he believes that's a false signal and prices will soon correct.
"There has been talk that China has bought up to 5 million tonnes of US soybeans in the last month as trade negotiations take place," he wrote in a blog post. "This has a nice ring to it, but in our view, these are goodwill purchases for Chinese state-owned storage and nothing more. These trades in no way portray real demand within the country."
The faltering imports are a major red flag for demand. Meanwhile, the world's top three soybean suppliers — the United States, Brazil and Argentina — have all produced sizable crops.
"We're already dealing with record-high global soybean stocks," Smithmier says.
"The last thing you need to add to the difficulty of the trade war is a true demand problem in China, one that is caused by lower demand from feed, not just trade war rhetoric. You have an absolute issue there."