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| You are right about many of the big soybean export sales announcements that usually result from a Chinese trade delegation visit to the US. While the trade often refers to these agreements as "frame" contracts (short for time frame) They aren't contracts in the legally binding sense but rather more akin to letters of intent. Historically, though not always, they are announced to coincide with a high level Chinese government delegation visiting the US to soften criticism of China's large trade surplus with the US. They sometimes would also announce agreements of large purchases of Boeing aircraft to complete the dog and pony show.
The actual contracts that Chinese crushers sign to buy US and South American soybeans are legally enforceable. They typically require the buyer to put up a non-refundable good faith deposit shortly after the agreement is made; with a letter of credit being opened with an appropriate bank for the full value of the contract (generally before the cargo is loaded and shipped). Of course sometimes cancellations happen when the price difference favors forfeiting the deposit.
It's also important to remember that many US exporters either own or have major equity positions in Chinese crush plants. Sometimes export sales and cancellations are "in house" transactions in which there wouldn't be a cancellation fee. | |
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Frame Contracts
