The budding U.S.-China trade war has thrown the international soybean market into turmoil, but so far traders are working to manage the chaos.
The threat of Chinese tariffs on U.S. soybeans is scaring away some Chinese importers, but the resulting drop in prices is attracting other buyers in Argentina and the European Union who would normally be purchasing from Brazil or Paraguay, says John Baize, president of John C. Baize and Associates and a consultant for the U.S. Soybean Export Council.
"What the trade does – and they do it very quickly and efficiently – is they realign,” Baize said. “They react to potential threats and everybody says ‘Get me out of this risk before the tariffs hit me.’ So soybeans that would normally be shipped in the summer months from Brazil to China get shipped out of the U.S., and the soybeans that were going to China from the U.S. get switched and go from Brazil.”
China has not actually implemented tariffs on U.S. soybeans, but the threat continues to spook the market – especially Chinese importers who would have to pay the extra 25 percent tax.
By early March, concern in the U.S. soybean sector had been mounting for months as the Trump administration considered imposing tariffs on imported steel and aluminum and punishing China for intellectual property theft. China, soybean farmers here knew, could retaliate to either with tariffs of its own, and U.S. soybeans were a high-value target because about 60 percent of U.S. soybean exports normally go to China.
In late March, the Trump administration announced about $3 billion in steel and aluminum tariffs on global imports. China is only a minor exporter of those products to the U.S., but the country reacted by imposing $3 billion of tariffs on U.S. pork, fruit, wine, nuts and other items. Soon afterward, the U.S. Trade Representative published a list of 1,300 Chinese exports that could be hit with a 25 percent tariff to punish China for stealing U.S. trade secrets and intellectual property.
China responded on April 4 by announcing new tariffs of its own, including a 25 percent tariff on U.S. soybeans.
That same day USDA’s Foreign Agricultural Service announced export sales of 325,000 metric tons of U.S. soybeans to “unknown destinations.” Those sales – and several more over the past couple of weeks – are for delivery to Europe, Baize said, which would normally be buying from Brazil at this time of year.
The FAS announced a 120,000-ton sale to Argentina on April 10 and another 120,000-ton sale on April 11.
John Baize
“What happened was right after the Chinese announced that they were going to put U.S. soybeans on a retaliation list, there was a big spike in Brazil prices and a decline in U.S. prices,” said Baize.
Some Chinese buyers kept purchasing from the U.S. despite the tariff threat (FAS just announced a 132,000-ton sale to China last week), but many would prefer to source from Brazil. That, together with the general fear of Chinese tariffs, pushed U.S. prices down and enticed buyers from Argentina, where drought has ravaged the country’s soybean crop.
“It’s the drought,” American Soybean Association President John Heisdorffer told Agri-Pulse. “They haven’t bought beans from us in 20 years, but they did because of the drought. South America is so busy selling to China, they’re running out.”
U.S. soybeans were selling for $419 per ton, freight on board (FOB) from New Orleans, on April 10, compared to $437.90 FOB out of Paranagua, Brazil, Baize said. He added that the U.S. has racked up sales of about 1.5 million tons of soybeans to destinations other than China because of the lower prices and that could continue. The price for U.S. soybeans has gone up, but there’s still a significant premium for Brazilian soybeans.
“The (U.S.) farmer may have lost temporarily,” Baize said. “The value of the beans he’s got went down because of the price collapse, but we’ve got extra sales on the books, which reduces our carryout and improves the situation later on.”
U.S. exports and the international market are certain to get even more chaotic if China does eventually impose the 25 percent tariff on U.S. soybeans, but even then China will still have to buy from the U.S.
“China can’t get all of the soybeans it needs from Brazil,” he said. “At some point it’s going to have to come here, but in the interim if it buys less from us, that means Brazil has got less to sell to everybody else and we’re going to sell to them.”
But a massive drop in U.S. exports to China is still a scary proposition. Purdue University researchers released a study last week looking at the damages that Chinese tariffs of 10 or 30 percent would inflict on U.S. soybean exports. Extrapolating from those results, a 25 percent tariff would force a reduction in U.S. exports to China by 60 percent and cause U.S. soybean production to fall by 15 percent.
For more news, go to www.Agri-Pulse.com
