What’s going on in soybean markets?
- The US exported about $28 billion worth of soybeans in 2017 – half of this went to China.
- Prices of soybean futures contracts have declined steadily from March and are now at 2-year lows.
- China has placed US soybeans on a list of imports subject to a 25 percent increase in tariffs.
- This increases tariffs on imported US soybeans in China from around 13% to 38%.
Global use of soybeans has increased by half in the past decade to more than 350 million tonnes, with China dominating consumption, buying 63% of worldwide exports. It has historically sourced its supplies from both the US and South America. As the trade war rhetoric has deteriorated in recent weeks, soybean prices have fallen steadily. However, the market for Brazil’s soybeans has shown some resilience versus US soybeans. In fact, the premium for soybeans sold at Brazilian ports has recently expanded to $1.95 per bushel above Chicago futures, more than twice what is typical for this time of year.
Superior US crop ratings and growing conditions are expected to yield a bumper US harvest, while the strengthening US Dollar versus emerging market currencies is also impacting supply. As global soybean markets are dollar-denominated, the fall of the Brazilian Real has made it more attractive for Brazilian farmers to export the crop, increasing market supply even further. The tariffs would be estimated to half US exports to China, although the decline would potentially be offset by exports to other markets. These markets include Europe, south-east Asia and Mexico, all of which have excluded soya products from its own new tariffs on US products to shield the domestic livestock industry that purchases US soybeans.
The annual rhythm of soybean trade could be disrupted and become less efficient as a result of trade tariffs. Some economists argue that domestic consumers and industries end up paying the cost of tariffs. There are also potential risks regarding upward inflationary pressures to consider.
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