US <> China Soybeans Trade Thesis
The catalyst hit 28 days after writing this thesis. Below is the original investment memo followed by an honest assessment of what worked, what I missed tactically, and what's still playing out.
Original Thesis
Investment Memo: Long US Soybeans & Agribusiness
US <> China relations should thaw, how do we profit?
Date: October 2nd, 2025
Horizon: 6-12 months
Target Return: 25%
The Opportunity
China has effectively boycotted US soybeans since May 2025 in retaliation for lingering tariffs, purchasing zero shipments despite being the world's largest importer. This political standoff has created a massive dislocation:
- US soybean prices near 5-year lows (~$10-11/bushel)
- US export volumes down 23% YoY - lowest in two decades
- China imposed a 25% retaliatory tariff on US soybeans during the trade conflict, on top of its base import duty and VAT, effectively making US soy 20–30% more expensive vs Brazilian supply
- US agribusiness stocks down 30-50% from recent highs
This is politics, not fundamentals. China's soybean demand remains enormous (record imports in 2025). The moment barriers ease, equilibrium shifts dramatically.
Soybean futures via Tradingview. Consolidating at multi-decade support with clear upcoming catalysts making price discovery possible.
Catalyst Timing is Critical
Why Now: 70% of US soybean exports to China occur November-April. This window is open but closing fast.
- China hasn't booked critical Nov-Jan volumes yet (14-16M tons "missing")
- Both sides feeling pain: US farmers losing $100-200/acre; Chinese crushers seeing negative margins
- Recent diplomatic signals: High-level meetings being arranged, trade talks resuming. APEC meeting scheduled between Trump and Xi for Oct 30.
- Trump's choice is clear: At this point, the situation is dire enough that they either cut a deal or provide stimulus for farmers.
Any breakthrough unleashes immediate demand surge.
The Trade Structure
| Asset | Ticker | Weight | Rationale |
|---|---|---|---|
| Bunge | BG | 35% | Leading oilseed exporter. Revenue -26% below forecast. Stock at $85 vs $110+ highs |
| Archer-Daniels-Midland | ADM | 25% | #1 grain handler/processor. Q2'25 earnings -53% YoY on trade disruption. Trading at ~$60 vs $90 pre-crisis |
| Mosaic | MOS | 20% | Fertilizer producer. Benefits from improved farm economics. Trading $35 vs $50-70 historical range. |
| Soybean ETF or futures | SOYB/ZS | 15% | Pure commodity exposure via futures |
| Cash | N/A | 5% | Dry powder, or calls for leverage. |
All positions outside of SOYB/ZS generate dividends (2-3% yield) while waiting for thesis to play out. If I were forced to pick one single stock, it would be Bunge (BG).
Return Scenarios
Bull Case:
- Trade deal or tariff reduction
- Soybeans rally 30%+ to $14-15/bushel
- ADM/BG earnings normalize → stocks re-rate 50%+
Portfolio Return: 40-50%
Base Case:
- Partial resolution/goodwill purchases
- Modest soy recovery, some export resumption
Portfolio Return: 15-25%
Bear Case (very low probability):
- Status quo continues
- Limited downside from current depressed levels
Portfolio Return: -10% to flat (cushioned by dividends, easily invalidated in short term by trade talks fizzling)
Key Risks
1. Trade talks fail: Current prices already reflect the worst-case scenario.
2. Brazil and other alternative sources permanently capture market share: This is possible in the long term, but China needs diversification.
3. Possible global recession hits demand: Would affect all assets, not just thesis-specific picks.
Why This Works
Asymmetric risk/reward - Market pricing continued conflict, not resolution. This idea could be invalidated by trade talks fizzling, in which case there is limited short-term downside - it is good, however, to remember soybeans are already trading at cyclical lows.
Clear catalysts - Any positive headline moves these assets immediately.
Solid fundamentals - These aren't speculative companies; they're profitable industry leaders at cyclical lows for political reasons.
Uncorrelated macro play - Independent of tech/growth dynamics, highly appealing given concerns around the AI capex trade.
Time-sensitive - Export window creates urgency for both sides to act.
Bottom Line: We're buying maximum pessimism in an essential global commodity with powerful incentives for normalization. Even partial improvement delivers outsized returns from these levels.
"The market is pricing a five-alarm fire that both governments have strong incentives to extinguish."
Post-Mortem (November 7th, 2025)
Performance of Bunge, and the greater basket, relative to SOYB as a benchmark. Matplotlib, data pulled from Alpaca.
The catalyst hit almost exactly on schedule. Trump and Xi met at APEC on Oct 30 - 28 days after this thesis. China committed to 12M tons this year and 25M annually for three years, plus dropped most ag tariffs. Soybeans jumped 7-8% over the month. Bunge made its biggest move mid-October - ripping from $81-82 to $92+ in a single day on Oct 15 (about 12-13%) as the market front-ran the deal, then consolidated around a $92-97 range through, and after, the actual APEC announcement in a classic sell-the-news pattern.
What I got right: The political setup. The "Trump either makes a deal or provides stimulus" framework created real pressure on the US side, while China was squeezed by supply chain concentration risk - they need diversified sourcing beyond Brazil alone. The timing window was correct, the catalyst materialized, and the trade worked.
What I missed: Most of the move, so far, happened before the deal was even announced. Throughout October, the market ran on anticipation while I was positioned for a post-deal surge. I expected some pre-APEC rally, but the market frontran harder than I thought. In hindsight, this should have been staged across two timeframes: a speculative position pre-APEC, then rebalancing size and construction after the deal landed with more certainty.
The real lesson on portfolio construction: This trade contained two opportunities - a near-term catalyst play (pre-APEC speculation) and a longer-term recovery trade (earnings normalization in Q1/Q2 2026). I positioned for the latter with a diversified basket, but the market rewarded the former. BG surged 13% in the first month, SOYB climbed 7%, while the basket ended flat as ADM and MOS lagged.
The tactical miss: When there's a clear near-term catalyst like the APEC meeting, the market front-runs aggressively. With hindsight, better execution would have been concentrated exposure to the most leveraged plays (BG or SOYB) ahead of the deal, then rebalancing into the full basket afterward to capture the earnings recovery. It was a mistake to confuse a 4-week long event trade with a 6-12 month fundamental thesis.
The strategic thesis, that ADM/BG/MOS outperform on earnings normalization, hasn't been tested yet. These companies haven't reported a single quarter under normalized trade conditions. That plays out in Q1/Q2 2026, which is when the original bull case projected the equity re-rating.
Looking forward: The acute catalyst (political crisis resolution) has played out, delivering the near-term price discovery. But the longer-term thesis I positioned for, that these companies outperform on earnings normalization, is still intact and will be tested in Q1/Q2 2026.
Execution risk matters here: monitor actual shipment volumes closely. During Trump's first term, China dragged its feet on soybean commitments. Could this deal just be short-term appeasement while Brazil scales capacity, and China diversifies its soybean supply chain? Possible. The next 6 months will tell us whether the strategic basket call was right.