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SOYB ETF to Gain as China's U.S. Soy Imports Scale New Highs

Sweta Jaiswal, FRM

China is visibly trying hard to mend its sour relationship with the United States. The country is focusing on its US farm purchases, the sector that has been worst hit due to the trade war. In this regard, Beijing’s purchases of soybeans from the United States reached the maximum mark in 20 months during November. Investors can see this as another positive sign before inking the Sino-US phase one trade deal in January 2020 (read: Trade Deal Optimism Fuels Santa Rally: ETFs & Stocks to Bet On).

The Import Numbers

The soybean shipments from the United States hit an all-time high since March 2018. China imported 2.6 million tons in November in comparison to 1.1 million tons in October and no purchases in November 2018. Going by the U.S. Department of Agriculture data, China’s total purchases in the current marketing year touched 10.5 million tons compared with 2 million tons in 2018.

The communist country has been providing waivers for several state and private companies. The exemptions in turn, enable the companies to purchase U.S. soybeans without facing the 30% retaliatory tariffs. Per China National Grain and Oils Information Center, China’s purchases can rise to around 9 million tons in December. This can help solve the issue of supply crunches faced by some crushers.

China has been an important market for soybean exports to the United States. Argentina and Brazil were seeing a spurt in exports of raw soybean to China since it imposed 25% tariffs on U.S. soybean imports. China also struck a deal to allow the import of soy meal livestock feed from Argentina by risking its own crushing industry. It is worth noting here that the United States had exported $12.2 billion of soybeans to China in 2017, which dropped to $3.1 billion in 2018 .

China on the Route to Truce?

According to announcements on phase one trade deal, China is committed to expand its total U.S. goods and services purchases by at least $200 billion over the next couple of years. This includes Beijing’s agreement to raise its U.S. agricultural product purchases to $40-$50 billion in each of the next two years (read: ETF Winners as US-China Deal Eases Trade Tensions).

Moreover, China recently announced a reduction in tariffs on some imported products starting 2020. It is planning to slash tariffs on 850 types of products to rates lower than most-favored-nation rates. The plan is approved by the State Council. The products will include some consumer goods like frozen pork, medicines for treating asthma and diabetes, and semiconductor products.

Beijing announced a new set of tariff exemptions on Dec 19. The exemptions will be valid for a year and are expected to be implemented on Dec 26. Notably, the tariffs that have already been levied are not likely to be refunded. The latest waiver incorporates products, such as metallocene high-density polyethylene and linear low-density polyethylene. Moreover, several refined oil products that consist of white oil and food-grade petroleum wax are included in the list. White oil is primarily used in medicinal and pharmaceutical operations. Also, it has application to cosmetics, plastic and food industries.

The Teucrium Soybean ETF SOYB in Focus

The fund provides investors with unleveraged direct exposure to soybeans without the need for a futures account. It has AUM of $27.9 million with an expense ratio of 1.15%. The fund has gained 4.7% in the past month (read: SOYB ETF in Focus as China Allows New Waivers on U.S. Soybean).

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