China has long been the big dog in the soybean market, accounting for about 6 of every 10 bushels exported around the world. Though sales of 2016 crop U.S. soybeans are running at a record pace, the future of that trade is far from certain. Domestic politics, both here and in China, could reshape this soybean pipeline, and that’s a very big deal.

Soybean exports were a key factor helping the U.S. economy grow last year. When the books are closed on 2016, the final accounting of that trade could reach $22 billion, maybe more.

This size helped soybeans skate past a relationship between the U.S. and China that was already bumpy before Donald Trump’s election. Disputes over claims in the South China Sea exacerbated tensions stemming from the relentless devaluation of the yuan currency, which lost 6.7% of its value against the dollar.

Chinese leaders allowed — or promoted, depending on which country you’re from — a weaker currency to boost their struggling economy. The tactic appeared to work. Coupled with proposals to boost infrastructure spending, the policies stabilized the Chinese economy and helped set off a commodity rally in 2016 after years of decline.

Nowhere was that boom felt more than on China’s futures exchanges. Trading volume in industrial commodities like iron ore skyrocketed in March and April. Volume on some days was more than the country imported in an entire year.

Speculators, both big and small, joined the frenzy until the government stepped in to cool the fervor. The measures worked for a while, but the hot money began to flow again last fall, even before the U.S. election. Trump’s victory added fuel to that fire on ideas that tax cuts and infrastructure spending here could boost economic growth, and perhaps even inflation.

Postharvest rally
That momentum, and the strong pace of exports, helped U.S. soybean futures enjoy a nice postharvest rally. But as the buying gathered steam, more and more volume on the Chicago exchange began to take place when the market in China was open, from 7 p.m. CST to 1 a.m. Normally, less than 10% of the volume in nearby soybeans occurs in this overnight window. On some days in November that share topped 30%.

The Chinese government again stepped in to curb some of this excess. But nearby soybean futures on the Dalian exchange stayed near 18-month highs as 2016 ended.

Some of the rally in China was due to currencies. The value of the commodity increased in yuan when prices were converted from the strong dollar.

Attractive crush margins helped support the market, too. A glut of imported soybeans in the wake of the March-April bubble caused plants to run deep in the red over the summer. But that surplus shrunk as smaller processors continued to be squeezed out of an industry plagued with too much capacity.

The bigger companies left may be better at regulating their buying. Their purchases may have already slowed into the lunar year holidays, which closed the market from Jan. 27 to Feb. 2.

U.S. sales to China are easing seasonally anyway, as the South American crop takes over trade. But how fast and how far the pendulum swings back to the U.S. could hinge in part on whether the two countries can avoid escalating trade disputes.

Trump’s call for a 35% tariff on Chinese imports could trigger retaliatory measures, maybe sparking a trade war. But these appear unlikely to affect soybean imports unless the Chinese economy falters as a result.

Keeping the diets of a growing Chinese middle class filled with protein helped spur the soybean import boom that kept the U.S. trade deficit from slipping deeper into the red. Soybean diplomacy may be bigger than the politicians of either country.

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