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China’s newly imposed tariffs against U.S. soybeans herald a major trade shift for a crop that’s soared to prominence in recent decades.
While the Asian nation is targeting a slew of American farm goods in this round of taxes, soybeans are the top avgricultural commodity the country imports from the U.S. by far. The oilseed, used to make cooking oil and animal feed, accounts for about 60 percent of the U.S.’s $20 billion of agricultural exports to China. Before the tariffs were announced, a study by the University of Tennessee forecast that a 25 percent duty would spark a drop in American shipments of at least $4.5 billion. Brazil, already the world’s biggest soybean shipper, is set to be the biggest winner, filling the gap left by the U.S.
Soybean Destinations
Where the top exporters sent beans, metric tons
5M
37.5M
EU 28
9.5M
U.S.
13.5M
China
48M
8.75M
Rest of
World
Brazil
20.5M
22.5M
Argentina
Source: Rabobank
U.S. Prices
The tariff announcement has already weighed on soybean prices. Most–active soybean futures on the Chicago Board of Trade sank 14 percent in June as tensions swelled between the U.S. and China, the largest loss in four years. As demand is threatened, supply looks strong. Brazil harvested a bumper crop earlier this year. U.S. farmers planted one of the highest soybean areas on record and growing conditions have proven favorable so far this season.
U.S. Soybean Futures
Since the start of 2018, dollars per bushel
$11.00
10.50
10.00
9.50
China announces plan to impose 25% tariff on soybeans and other farm goods
9.00
China confirms tariffs will begin on July 6
8.50
Jan
Feb
March
April
May
June
Source: Chicago Board of Trade
China Imports
China is the world’s largest soybean consumer and remains heavily reliant on imports to satisfy demand. That’s why the country’s buying habits have an outsize influence on global prices. By imposing the tariffs on U.S. agricultural products, China is targeting one of the few sectors of the American economy that runs a trade surplus at a time when net farm income is poised to fall to a 12–year low. Soybeans are one of the largest U.S. goods exported to China—trailing just civilian aircraft and motor vehicles by value this year, Bloomberg Intelligence analysts Alvin Tai and Chris Muckensturm said in a report.
Global Soybean Consumption
China now makes up a third of the world’s demand, metric tons
400M
300
200
100
0
1968
1978
1988
1998
2008
2018
Source: U.S. Department of Agriculture
Brazil Prices
Brazil has been the world’s top soybean shipper since the 2012–13 season. Its lead has widened against the U.S. in recent seasons, and China’s tariffs may serve to accelerate Brazilian demand. Brazil typically dominates global shipments at this time of year, while the U.S. takes over from about October through January, after its harvest is collected.
Brazil Has Overtaken U.S. Soybean Exports
Metric tons
80M
60
In 2013 Brazil overtook the U.S. as the top soybean exporter
40
20
0
1968
1978
1988
1998
2008
2018
Source: U.S. Department of Agriculture
Brazil has posted swift gains in soybean production, spurring the export rivalry. A boom in global soy prices in the mid–1970s encouraged the government to invest in technology to adapt the crop to the country’s weather and soil. That created successful seeds that allowed planting in the Cerrado region, including what today is the top producer state, Mato Grosso. The biggest acreage jump occurred since 2000, as China’s demand climbed.
Brazil Premiums
As China formalized its plans last month to take action against U.S. agricultural products, soybean premiums at Brazilian ports soared. Demand for South American supplies has surged even while U.S. futures are tumbling. U.S. soybean prices may see an “increasingly severe” impact if trade tensions remain through harvest, CoBank analysts said in a report. China may also substitute some of its soybean demand by using canola or rapeseed meal in animal feed, according to Bloomberg Intelligence.
Brazil Soybean Premium For July
Since the start of 2018, dollars per bushel
$2.00
1.60
1.20
0.80
0.40
Jan
Feb
March
April
May
June
Source: Ary Oleofar Agricultural Prices
How Long Will Tariffs Last?
The longer–term impact is less certain. Brazil doesn’t export enough soybeans to meet China’s demand alone, and there are few other major shippers besides the U.S., which will begin harvesting its next crop in September. Argentina is a significant grower of the oilseed, but more commonly exports the processed forms—meal and oil. Lower Chinese demand for U.S. supply may be partially offset by rising exports to destinations like the European Union, according to a Rabobank report.
China still has about 1.14 million metric tons of outstanding U.S. soybean sales on the books for delivery by Aug. 31, though some cargoes have recently been switched for delivery in countries like Bangladesh and Iran, U.S. Department of Agriculture data show.
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