China’s President Xi recently had phone talks with Brazil’s President Lula, as reported by China’s state media. This conversation comes in light of Trump’s suggestion for China to buy more soybeans from the U.S., which has raised concerns for Brazil, a top soybean supplier to China. China is currently the world’s largest buyer of soybeans but is facing challenges due to an oversupply in the market. Even with record imports in early 2025, weak demand and high supply from Brazil are creating an excess as we enter the fourth quarter, coinciding with the U.S. peak marketing season.

China’s Soybean Oil Exports

In the first half of 2025, China exported about 127,000 tons of soybean oil, surpassing the total exports for all of 2024. Xi and Lula likely discussed soybean trade, especially since Trump is advocating for increased purchases from the U.S. to foster better trade relations. The U.S. impact on Brazil’s soybean exports to China appears limited, particularly following issues related to the Phase One trade deal. In June, China imported a record 9.73 million tons of Brazilian soybeans, while only bringing in 724,000 tons from the U.S. Given the oversupply, China hasn’t booked any new U.S. soybean shipments for Q4, citing “uncertainty about trade negotiations.” Despite Trump’s push, the current market isn’t favorable for China to increase purchases from the U.S. Brazil’s market position seems secure, with historical trends suggesting that while China might temporarily increase U.S. imports, it will likely revert to Brazil as its main supplier. With the large surplus in China, we expect soybean prices to decline in the coming weeks. China’s port inventories have risen, with early August 2025 figures showing stocks around 8 million metric tons, well above the five-year average for this time. This oversupply, largely due to high Brazilian imports, is likely to put pressure on soybean futures, including the November (ZSX25) contract, as we move toward U.S. harvest time.

Impact on Soybean Prices

U.S. political calls for increased Chinese purchases may lead to temporary price spikes. However, we believe these spikes are politically driven and do not reflect China’s actual weak demand. Thus, any price rise linked to trade headlines should be viewed as a chance to sell or take short positions, as the fundamental oversupply will likely reassert itself. The tension between U.S. political demands and the reality of the Chinese market creates considerable uncertainty, maintaining high volatility. This has been evident in options markets, where the CBOE Soybean Volatility Index (SOYVIX) has traded near yearly highs from July into August 2025. Traders should be prepared for significant price fluctuations and consider strategies that take advantage of this volatility. Additionally, we are monitoring the crush spread, which is the profit margin for converting soybeans into meal and oil. With China now exporting soybean oil, it indicates that domestic demand for soybean products is saturated, likely squeezing processing margins. This implies a bearish outlook on the crush spread, anticipating that the price of raw soybeans will decrease faster than that of its processed forms. Looking back at the 2019-2020 timeframe offers insights into potential developments. During that period, China made goodwill purchases of U.S. soybeans to reduce trade tensions but quickly returned to Brazil as its primary supplier once political pressures eased. We expect a similar scenario now, where any significant U.S. purchases will be short-lived and unlikely to alter Brazil’s dominant market position. Create your live VT Markets account and start trading now.

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