June sixteenth, two thousand twenty-five

I. Foundation 

resistance to change and hence greater dependability for the results shown in the past.

II. Insights 

Our Viewpoints and ideas on market...

A rare macro trading opportunity: a conversation starting with soybeans

Before Trump took office last year, we made a soybean trade on the Planet. The main domestic proxy instrument was Soybean Number Two, which is very strongly correlated with U.S. soybeans, At the time, we opened the position in month 11, 7, and prices then fell all the way as expected...

Chart: The price decline officially began the day after the post

Longtime friends of the Planet will probably remember this trade very well; it was a trade that gained recognition beyond our circle...

It also directly led to a fairly satisfactory result for our performance in 24...

Caption: Notes 241107 Experts’ Take on Soybeans

This is a very typical macro trading path: cross-market asset dynamics can produce a high-certainty outcome with large swings in a single market., the day after the post, Soybean No. Two fell all the way from its high, reaching its lowest trading price in more than two years.

Using this trade as a starting point, today we’ll talk about a few other things, We’ll first provide some background on soybeans as a commodity, then discuss why, at this particular point in time, another trading opportunity closely linked to soybeans is emerging....

This trade also combines a long soybean position, long commodities, short USD, and a uniquely asymmetric trade structure with a built-in margin of safety..

We’ll reveal it at the end of the article.

1. In agricultural commodities, two products have featured frequently in USDA reports since the start of this year: corn and soybeans. And Compared with corn, China has a much greater influence on the global soybean market (accounting for 60% of global consumption) and is more vulnerable to the impact of tariff uncertainty.

2. China is in fact the world’s true largest soybean importer; its external dependence has remained above 80% over the long term, and its import sources are relatively concentrated.Feed grains used as a source of protein, especially soybean meal, are considered one of the main risk points in China’s food security system.Demand for soybean meal in animal feed is one of the key factors driving soybean imports.

According to U.S. Department of Agriculture (USDA) data, in 2024 China imported agricultural products worth 247 hundred million dollars from the United States, accounting for 14% of that year's total U.S. agricultural and food exports.

The main import categories include soybeans, beef, cotton, coarse grains (excluding corn), nuts, dairy products, poultry meat, and related products.Of this, China imported 2210 ten thousand tonnes of soybeans from the United States, representing 21% of China's total soybean imports of 1.05 hundred million tonnes for the full year 2024, equivalent to 19% of China's annual soybean demand.

Chart: Soybeans stand out among China's major agricultural imports in terms of import dependence

Another chart is actually clearer; this is China's soybean consumption and import dependence since 1995:

Chart: High dependence on overseas supply

This makes it very clear why soybeans are considered one of the major risk points in China's food security system.

For the full year 2024, China's total agricultural imports from the United States were 247 hundred million dollars, with soybeans accounting for 52%:

Chart: Why soybeans are the biggest and most direct risk in U.S.–China agricultural trade

3. Actually, we have also been seeking alternatives to curb excessive growth in soybean imports and overseas dependence, and where we can act, we have quietly done a great deal...

As of this year, China has established a strategic soybean reserve system that can slow the pace of imports if the trade war potentially escalates. China imported about 1.12 hundred million tonnes of soybeans in 2024; imports are expected to fall to 1.04 hundred million tonnes this year.This is markedly different from the market environment during the previous U.S.–China trade war, because China had not yet established a strategic soybean reserve system at that time..

However, Any structural change inevitably has to be viewed on a ten-year basis, which naturally means this pattern of dependence will be difficult to change in either the short or medium term.

4. Beyond strategic reserves, China is also accelerating the shift of its soybean purchasing focus from the United States to Brazil. This trend continues to drive the expansion of planted acreage in relevant regions of Brazil, further weighing on U.S. soybean prices.

In 2018, when China imposed 25% in retaliatory tariffs on U.S.-grown soybeans, the landed price of U.S. soybeans (CNF China) briefly fell by nearly 100 dollars per tonne, while Brazilian soybean prices remained largely stable..

At this stage, the current round of retaliatory tariffs on U.S. soybeans 135% will most likely lead to the same outcome:

Chart: The spread structure from a tariff perspective

5. With the background covered, Why are we bringing up soybeans again today..?

Chart: CBOT soybeans

Taking a broader view, compared with the previous volatility trade, Soybean futures have actually been trading in an extremely compressed range since the second half of 24...Between the tariff narrative, the planting debate in the U.S. Department of Agriculture's investigation report, and the shift to Brazil, soybean futures Volatility continues to contract and the market is moving sideways, which is quite unusual. As of now, the percentile for this narrow-range trading is near its low for the past 20 years..

Chart: weekly chart

Compared with the decline in the previous round of trading, this time prices are instead beginning to test the upper end of the trading range...

Such unusual and calm volatility is often a precursor to most macro price breakouts..

As I keep saying, a delicate balance often foreshadows dangerous volatility..

The U.S. government's proposed 26 and 27-year biofuel requirements are giving soybeans a new narrative, under this new narrative, Soybean oil produced domestically in the United States will have to account for a larger share of the feedstocks used to produce renewable diesel, while at the same time, the period when tariff issues had their strongest and worst impact on the market has already passed.

This means that if trade conditions ease, gains will follow, while the downside has a floor. An asymmetric risk-reward opportunity over a longer time horizon is gradually taking shape, with strong capital support on the downside, an upside breakout seems more likely, and our view is awaiting confirmation from capital flows...

6. We won't trade soybeans, because there are better choices..

Even so, we won't trade soybeans directly, because there are better choices in the market to help us express this trading view, and these choices offer a more suitable risk-reward ratio.Under the same narrative, assets following the same trading path can also have different risk-reward ratios. Choosing which horse to back is sometimes more important than correctly judging the direction...

In a market that few people pay attention to, a An asymmetric trade structure expressing long soybeans, long commodities, and short the U.S. dollar, with a unique safety cushion is taking shape..

Chart: Brazil equity index

Some clever friends have already guessed... After all, only three places are mentioned throughout this article:

China, the United States, and Brazil.

Brazil is a major global soybean exporter, the most important third party in U.S.-China soybean trade, and currently China's only alternative outside the United States; the fact is that China really is aggressively placing its orders with Brazil...

If soybeans themselves could be on the verge of a price breakout (whatever the reason), Brazil would be a direct beneficiary...

Using the Brazilian equity index as a proxy for a soybean trade can, on the one hand, smooth out the uncertain fluctuations in soybean trading driven by news and media narratives while capturing the trade's upside; on the other hand, Brazil's own fundamental economy provides an even more asymmetric safety cushion for this asymmetric risk-reward opportunity...

Over the past two years, the Bovespa index has remained within a relatively narrow trading range and is now approaching its all-time high (our observation level is at 140500; the core position has been in place for a long time. This trade was actually mentioned earlier in our public account when selecting macro reading recommendations. Latin American assets are among the most undervalued assets in the world today, and the market's 12-month forward P/E is currently only 8.5 times. If it breaks out, we will increase the position), while domestic fundamentals and macro conditions will also support an upside breakout to a considerable extent.

One more thing to mention is Most Brazilian companies are primarily in the business of exporting large volumes of commodities, which is actually highly advantageous in the current macro environment, Going long Brazil is essentially also taking on a layer of commodity exposure and a layer of short-dollar exposure; it is a consistent expression of our multiple macro views:

Chart: Notes250613 Three Triggers for the Dollar's Decline

Besides that, The Brazilian central bank had previously raised interest rates to 14.75%, supporting BRL's strong performance while also implying that inflation could gradually come under control, opening up room for future rate cuts and gains in the equity index;

From a fiscal perspective, Brazil will hold its general election in 26 10, and the right-wing party currently favored by the market is leading in the polls and is expected to take office; incumbent President Lula is also likely to push for economic stimulus before the election...

If the observation level breaks, we will take part in this bet on a move to new all-time highs.

2025.06.16

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Note: All content herein is for reference only, does not constitute investment advice, and does not serve as a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for their decisions.