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Chinese Tariffs Take Toll on Soybean Markets


As the impacts of the ongoing U.S.-China trade dispute continue to unfold, a report last week from the U.S. Department of Agriculture provided some insight into how the Chinese tariffs are affecting soybean markets.  Today’s update looks at news reports that discuss trade issues and the USDA report in greater detail.

Background- U.S. China Trade Row Persists

Wall Street Journal writer Bob Davis reported on Tuesday that, “The White House said it would assess 10% tariffs on a further $200 billion in Chinese goods, deepening the dispute with Beijing, while sending a message to other trading partners that the U.S. won’t back away from trade fights.”

And a separate Journal article form Wednesday pointed out that, “China doesn’t import enough from the U.S. to match Washington dollar for dollar as it has in previous rounds, so Beijing is reviewing plans to hit back in other ways, said Chinese officials familiar with the plans.”

Meanwhile, Don Lee and Jim Puzzanghera reported on the front page of Thursday’s Los Angeles Times that, “President Trump’s latest threat of tariffs against China, on imports totaling roughly $200 billion, substantially raises the stakes for Beijing and could push the two countries’ trade war beyond the tit-for-tat duties seen so far.”

The article noted that,”The Trump administration’s latest move drew opposition from business groups and some Republican lawmakers concerned the tariffs could be a blow to U.S. consumers and damage economy.”

“Up to now, however, growing complaints about Trump’s broad tariffs from U.S. businesses, associations, lawmakers and even politically powerful constituents such as farmers have not dissuaded the president from following through on his threats.”

Agriculture Impacts- Soybeans

With this background in mind, Financial Times writer Gregory Meyer reported on Friday, “The first US government forecast incorporating the agricultural fallout from its trade war with China has come to a firm conclusion on soyabeans:

China will import less, American farmers will lose business and Brazil will be a beneficiary.

The US Department of Agriculture, in monthly supply and demand estimates published on Thursday, cut its forecast for China’s soyabean imports from 103m to 95m tonnes in the coming marketing year, reduced its outlook for US soyabean exports by nearly 11 per cent from 62.3m to 55.5m tonnes and raised its estimate of Brazilian exports from 73m to 75m tonnes, a record high.

“US cuts forecast for soyabean exports to China,” by Gregory Meyer. The Financial Times (July 13, 2018).

The Financial Times article pointed out that, “Sonny Perdue, US secretary of agriculture, has said USDA economists were calculating the effects of trade disruptions as he weighs federal assistance to farmers hurt by lower prices.

[Robert Johansson, USDA chief economist] said his office had been conducting exercises to estimate the impact of the tariffs. He said he would have better information when more precise estimates of US summer crops are compiled next month.“‘That being said, we’re always hopeful that the tariffs are going to be resolved before harvest,’ he said.”

And in referencing the potential assistance from USDA, The Wall Street Journal editorial board stated last week that, “Mr. Trump’s trade policy is creating a problem that didn’t exist and next he may create another one to ease the pain he has caused.”

“‘When it comes to agriculture, I just want to assure all my friends here in Iowa and all across the region: Under President Trump’s leadership, we’re always going to stand with American farmers,’ Pence said.”

Last week’s World Agricultural Supply and Demand Estimates monthly update also stated that, “The U.S. season-average soybean price is forecast at $8.00 to $10.50 per bushel, down $0.75 at the midpoint.”

World Agricultural Outlook Board Chair Seth Meyer discussed the new soybean price forecast in greater detail on Friday in a brief update from USDA Radio News.

A variable contributing to lower soybean prices is larger anticipated stocks of the commodity.  Wall Street Journal writers Benjamin Parkinand Francesca Fontana reported Thursday that, “The U.S. Department of Agriculture on Thursday projected stocks of soybeans for the 2018-19 crop year at a would-be record of 580 million bushels, around 50% higher than its previous estimate and more than analysts expected.”

“World Agricultural Supply and Demand Estimates at a Glance,” USDA- Economic Research Service.

Additionally on the issue of trade variables and U.S. soybean exports, USDA’s Foreign Agricultural Service indicated in an update Thursday that, “U.S. soybean exports reached record territory in May and are expected to reach a record in June based on export inspections.

This strong pace of trade reflects the strong pace of net sales to markets outside of China.

“Since late March, cumulative sales to these markets have approached 7 million tons, roughly 50 percent ahead of last year’s pace. In contrast, cumulative net sales to China over the same period have turned negative in recent weeks as recent cancelations have exceeded sales since the end of March.

“Oilseeds: World Markets and Trade.” USDA- Foreign Agricultural Service (July 2018).

“The strong demand for soybeans in markets outside China is being driven by the hefty discounts for U.S. soybeans relative to Brazil, a direct response to the recent 25-percent duty levied on U.S. soybeans entering China beginning July 6. This has resulted in U.S. soybeans being considerably more competitive to Brazilian and Argentine product and at prices considerably below levels seen in April, a relative bargain for importers. This trend is expected to continue into the foreseeable future as both strong demand by China and the duties imposed on U.S. imports help maintain price premiums for South American soybeans well into 2019.”

Reuters writer Karl Plume reported on Thursday that, “Even Brazil, the world’s top soybean exporter, is prepping for major purchases of U.S. soybeans to feed its domestic processors as it diverts more of its own crops to China at premium prices, according to exporters association Anec. Brazil may import up to 1 million tonnes of U.S. soybeans, with purchases likely ramping up in October, said Anec representative Lucas Trindade.”

The Reuters article added that, “No. 3 exporter Argentina has also bought U.S. soy to supplement its own drought-stricken crop. U.S. soybean prices could fall further after the crops are harvested from September through November if Chinese buyers continue to avoid U.S. soybeans.”

Source: Keith Good, Farm Policy News

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