Soybeans-China Can’t Afford to Cut U.S. Supply Source03/28/2018
On a trip last week from Beijing to south China, a visiting Iowa Soybean Association delegation sought to ease concerns about possible Chinese tariffs on soybeans and to emphasize shared benefits of trade.
Soybeans, as the largest-traded agricultural commodity from U.S. to China, were not included in the list of 128 commodities released Friday by the Chinese Ministry of Commerce for retaliatory tariffs against the United States.
The Chinese government said that the retaliation could be in two stages: the first stage with a 15% tariff on 120 products, including steel pipes and wine, worth $977 million; and the second stage with a 25% tariff on $1.99 billion in products such as pork and aluminum.
“The Chinese list included close to 80 fruit and nut products. U.S. exports of fruits, frozen juices and nuts to China were valued at $669 million last year,” said Wang Jun, a professor at China Agricultural University in Beijing. “We are pleased to see that the most-imported agricultural product, soybeans, is not included, though the market was worried about the issue from last week, and the soymeal price increased after the news.”
Though the Chinese news media strongly support the government’s retaliation against the U.S. action, many people believe that the proposed tariffs on $3 billion in U.S. products show that the China side is more willing to talk, rather than start a trade war.
“Most of the news reports are using soybean plants and U.S. soybean farms as background pictures, meaning that soybeans could be one of the target products for the Chinese government to use for retaliation,” Wang said. “If the trade war escalates, the Chinese government may eventually put a tariff on soybeans, though no one would like to see it.”
The fear is that the disagreements between Beijing and Washington, D.C., could escalate, affecting Chinese buyers’ ability to source soybeans from the U.S. Nearly 61% of U.S. soybeans are exported, with about 33% of that total — valued at more than $14 billion — consumed by China.
DTN Senior Analyst Darin Newsom noted China’s demand for soybeans actually offers President Donald Trump a somewhat stronger hand in this trade dispute with China. Chinese demand for some commodities is more inelastic than others, Newsom said. China’s middle class continues to grow, reportedly, creating larger demand for meat. That country’s domestic animals need something to eat, most notably soybean meal and corn.
“The bottom line is that China wants to threaten U.S. soybeans, but knows it isn’t in position to actually cut that supply tie,” Newsom said.
China’s soybean crush industry could be maxed out if Argentina, the world’s top soybean meal producer and exporter, is looking at a crop of only 39.5 million metric tons. To cover those needs, China will likely have to buy more soybeans to crush, or import soybean meal itself, from Brazil and the U.S.
A key indicator of actual export demand for U.S. soybeans will come Thursday when USDA releases its next Quarterly Stocks report.
Some of the fears from earlier this month have eased in the soybean markets. The May, July and November contracts were up in early trading Monday, although each of them are down 45-50 cents from prices earlier in March.
U.S. soybean growers want to maintain strong relationships, which are especially important during times like this, said Lindsay Greiner, president-elect of the Iowa Soybean Association and a farmer near Keota in eastern Iowa. Greiner is one of the farmer delegates to China.
“Our hope is that discussions directly with Chinese officials and buyers can reaffirm our need for each other,” Greiner said. “Both countries have a lot to gain by continuing our strong trade relationships.”
“China places a lot of importance on face-to-face communications and personal contact,” Greiner added. “They want to know the people who they do business with. We must communicate with them and with the White House so we can work these issues out to the benefit of both countries.”
While visiting a feed company in Wuhan, the capital city of Hubei Province in south China, Hongxing Yu, a purchasing manager for Haid, one of China’s largest feed companies, said the company routinely sources soybeans from Midwest soybean farms via the Gulf of Mexico. They like the stability of the product’s quality, particularly those grading high on crude protein.
Yu said China and the U.S. have a valued partnership. Trade disputes could be disruptive, not only for their business but for American farmers.
“These kinds of issues are hard to know how they will develop. We hope it will not happen,” Yu said. “It will impact our business. Any disruptions will harm U.S. soybean farmers, too.”
Source: Lin Tan, Agfax