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Tariff News Already Factored Into Soybean Market
The soybean market may be reflecting a worst-case scenario for tariff news. With Brazilian soybeans currently priced nearly 24% higher than exportable U.S. soybeans, the 25% tariff imposed by China is already factored into the market. That is, whether China buys beans from the U.S. or Brazil may be a moot point, as the price is close to being equal.
China and the U.S. are in what appears to be an escalating trade war, or as some have called it, a trade dispute. We have to wonder: If cooler heads prevail, could both sides have a victory? On one hand, President Trump may get his way, and China will purchase more U.S. products by dedicating more dollars toward U.S. products. On the other hand, soybean prices have dropped more than $2.00 a bushel. China could quickly meet its demand needs in an ever-growing demand market by purchasing lower priced U.S. commodities, in particular, soybeans. This may be wishful thinking, a far-fetched idea, or a reality. Whatever the case, we encourage U.S. farmers to be well prepared.
When trade talk disputes began to surface in late winter and early spring, the writing was on the wall for prices to fall. U.S. farmers had time and the ability to take a defensive posture and shift risk. Now that the market has fallen, you have to ask the question: What if prices rally?
Producers should consider purchasing soybean call options to retain ownership of forward sold beans for expected 2018 crop. You can also purchase call options to retain ownership of 2017 crop. By going back into the marketplace with fixed risk re-ownership, you are now positioned to take advantage of higher prices, due to news on the tariff front or the impact of weather. Soybeans are notorious for moving quickly. If you wait to gather enough information, the opportunity may well be behind you before you can take action. Pre-plan now, and be prepared.
If you have questions or comments, contact Top Farmer at 1-800-TOP-FARM Ext 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.