Both China and U.S. Will Feel the Pain of a Soybean Trade War
U.S. soybean exports will be down a quarter-billion bushels in the coming year due to steep Chinese tariffs on the oilseed, estimated the USDA on Thursday. In a boomerang effect of the U.S.-China trade war, Brazil would indisputably replace the United States as the world’s largest soybean grower as China scouts, without full success, for alternative soy suppliers.
“The tariff that China recently imposed on U.S. soybeans is expected to cause higher prices for soybeans in China,” said USDA analysts in the monthly WASDE report. Chinese soybean imports were forecast to fall by 8% during the 2018/19 marketing year despite larger shipments from Brazil, already the world’s largest soybean exporter. “It is likely that [livestock] feed rations will be altered,” said the companion Oilseeds: World Markets and Trade report. Chinese consumers will see a smaller supply of soy oil, their preferred vegetable oil for cooking and processed foods.
When the planting season begins in Brazil in September, growers are expected to expand soybean seedings by 2.4 million hectares, leading to a record crop of 120.5 million tonnes in 2018/19, some 2.5% larger than the projected U.S. harvest. Brazil, one of the world’s agricultural giants, nearly tied the U.S. as the top soybean grower last year, after years of slowly closing the gap. Two UN agencies forecast neck-and-neck competition in soybean production between the two countries throughout the coming decade.
Soybeans are the major U.S. agricultural export to China, with sales worth $14 billion last year. They are among an array of U.S. exports slapped with tariffs of up to 25% by China, the No. 1 customer for U.S. ag exports. Canada, Mexico, and the European Union have also set duties on U.S. farm exports in response to U.S. tariffs.
Futures prices for soybeans have tumbled by 20% at the Chicago market since late May. Prices for soybeans for delivery in November held steady on Thursday.
President Trump has vowed to protect farmers from unfair Chinese retaliation, though the administration has declined to spell out the assistance it might provide. The trade turmoil has greatly diminished congressional appetite for making farm subsidy reform part of a new farm bill this year.
In its first assessment of the impact of China’s tariffs, the USDA lowered its forecast of soybean exports in 2018/19 to 2.04 billion bushels, a drop of 250 million bushels, or 11%, from its projection in May. The soybean stockpile would surge to 580 million bushels by the time the 2019 crop is ready for harvest, the largest U.S. “carryover” in 74 years of USDA records. By contrast, the stockpile was a scant 92 million bushels when the 2014 harvest began.
“Despite losing market share in China, soybean exports are supported in other markets as lower U.S. prices increase demand and market share,” said the USDA.
With South American soybeans selling at a premium because of Chinese demand, importers in other countries have bought U.S. soybeans at comparative bargain prices in recent weeks. Since late March, nearly 258 million bushels — 50% more than usual — have been shipped to markets outside of China at the same time that Beijing has canceled contracts for U.S. soybeans. The price advantage for U.S. soybeans “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,” said USDA analysts.
All the same, the average price for this year’s U.S. soybean crop was forecast at $9.25 a bushel, 75$ lower than a month ago and the lowest in four years. The U.S. crop was projected at 4.310 billion bushels, the second largest ever.