U.S. Soybeans Under Pressure Amid Tensions With China

Spend Matters welcomes this guest post from Jonathan Stokes, market analyst at Mintec.

U.S. soybean prices fell dramatically during July, reaching their lowest levels since 2009. At their lowermost point, prices had fallen 20% from the beginning of the month, as a combination of factors centered around improving crop prospects and concerns over reactionary Chinese tariffs weighed heavily on the market.

Reports from the U.S. Department of Agriculture (USDA) released on July 2 stated that up to 71% of soybean plantings were in good to excellent condition, 2% lower week-over-week but considerably higher than at the same point in 2017, in which farmers reported a record harvest of 117 million tons.

Prices came under further downward pressure as forecasts pointed towards a 2% increase in U.S. production during 2018/2019 at 119.5 million tons, despite harvested area falling by 0.2 million hectares to 36 million hectares.

However, the main driver for such low prices was the ongoing and much discussed trade war between the United States and China. As the U.S. implemented 25% tariffs on certain commodities imports from China worth up to $34 billion, fears grew in global oilseeds markets of retaliatory tariffs on U.S. imports, especially soybeans.

Over the past twenty years, Chinese imports of soybeans have almost increased without fail, with estimates of a 95 million-ton requirement during 2018/2019 — around 62% of world imports. In 2016 and 2017 China took approximately 60% of all U.S. soybean exports and 30% of the total crop.

China’s decision to include U.S. soybeans in its list of tariffs has therefore had severe implications for prices. The uncertainty on the impact to U.S. markets has, in the short term, resulted in widespread selling of soybean stocks, alongside liquidation of stocks by market speculators.

There are a number of possible consequences for global oils and oilseeds markets. First, Chinese soybean imports could fall in the short term, reducing oilmeal consumption and limiting livestock production, which could result in downward pressure on global oilseed and vegetable oil markets.

Second, trade flows are likely to change with Brazil and other major exporting countries shifting a larger supply of their soybean to China and other importing countries benefiting from a shift to cheaper US soybeans.

The full extent of the impact that these tariffs will have in the long-term on both trade flows and prices of U.S. and global soybeans is hard to gauge. However, its short-term impact has been severe. Ultimately, the issue will have to be addressed by politicians on either side of the Pacific.