25 June 2018
US-China trade spat takes toll on soyabeans and squeezes farmers
The escalating trade fight between the US and China is taking a harsh toll on the market for soyabeans, pushing prices well below the level at which many American farmers can earn a profit.
China at the weekend put US soyabeans on a list of imports subject to a 25 per cent increase in tariffs, part of a tit-for-tat retaliation against tariffs against Chinese goods drawn up by the Trump administration.
The oilseed is the leading US agricultural export to China, amounting to $14bn in sales last year. It is widely grown in Midwestern farm belt states where voters backed Mr Trump’s 2016 election bid.
CBOT July soyabean futures dropped 3.7 per cent to $8.75½ a bushel in Chicago on Tuesday, the lowest level for a front-month contract since March 2016.
The move dragged grain prices lower, with CBOT July corn down 1.1 per cent to $3.52 a bushel, and CBOT July wheat fell 2.2 per cent to $4.79¼ a bushel.
“It’s a little bit of a bloodbath,” said Oliver Sloup of Blue Line Futures, a commodities broker in Chicago.
China assesses a 3 per cent tariff and 10 per cent value added tax on US soyabean imports, said Paul Burke, regional director for north Asia at the US Soybean Export Council, a trade promotion body. The new tariff would raise the combined duty to 38 per cent, he said.
The 36.2m tonnes of soyabeans the US exported to China in the most recent crop year were 61 per cent of its total exports and 31 per cent of its total production.
Mr Burke estimated the new tariffs would reduce US exports to China by about 70 per cent.
China needs foreign-grown soyabeans to feed pigs and chickens, and would be expected to increase its purchases from Brazil, the top exporter. The market for Brazil’s soyabeans has held firm: the premium for soyabeans sold at the port of Paranaguá has expanded to $1.45 per bushel above September-delivered Chicago futures, twice what is typical for this time of year, said Victor Ikeda, grains and oilseeds analyst at Rabobank in São Paulo.
“My opinion is basically this is related to the import tariff in China,” Mr Ikeda said.
Good field conditions in the Midwest dealt a further blow to US soyabean markets. With most of the crop seeded, 73 per cent was rated good to excellent on Monday by the US Department of Agriculture.
“You’ve got great weather and great crop ratings throughout the US, which should be beneficial for yields,” Mr Sloup said. “The cherry on top for the bear camp is obviously the trade news from China. That has put a lot of pressure on the market and it has fed on itself.”
For some farmers, the current price of soyabeans will lead to financial losses. Michael Langemeier of Purdue University’s Center for Commercial Agriculture estimated that high-productivity Indiana farms this year needed a price of more than $10 a bushel to break even.
The American Soybean Association, a grower’s lobby, has implored US political leaders to retreat from tariffs against China. The countermeasures from Beijing are “bad news for soyabeans farmers”, it said last week.