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Ag markets wane as China targets US soy

04 Apr 2018 16:20 (+01:00 GMT)
Ag markets wane as China targets US soy

Houston, 4 April (Argus) — New crop US soybean futures prices fell by 42¢/bushel during the overnight trading session to $9.99/bushel after China announced tariffs on $50bn worth of US goods, including soybeans.

Other agricultural products targeted included corn, beef and durum wheat in a response mirroring the Trump administration's $50bn worth of tariffs on Chinese goods detailed yesterday.

November soybean futures recovered slightly in morning trading to $10.15/bushel, still 45¢/bushel lower than the contract high set just two days ago.

The targeting of soybeans is viewed as a move by China designed to bring the Trump administration to the negotiation table. China is the world's largest soybean importer, buying 93mn tons in 2016 and consuming 62pc of all US soybean exports, according to trade data.

The Chinese government did not disclose when or even if the 25pc levies will go into effect as the government is waiting to see if the US follows through on its promise to impose its own tariffs. China's finance minister Zhu Guangyao said yesterday that there is time before the tariffs take effect to "negotiate and cooperate."

The tariff announcement marked an abrupt reversal for a soybean market that had recently rallied to new highs on a projected drop in US planted area for the 2018 season. The move also has sparked concerns from fertilizer market participants over its potential impact on fertilizer demand and prices in the US.

If China were to impose a 30pc tariff, China's imports of US soybeans could drop by as much as 71pc, according to a study released last week from Purdue University agricultural economists. Such a levy could cause total US soybean exports to fall by up to 40pc, subsequently cutting US soybean production by 17pc.

An escalation could hurt both countries as "the annual loss in US economic well-being would range between $1.7bn and $3.3bn," the Purdue study said. "Chinese economic well-being also falls if they impose a tariff, in some cases as much or more than for the US. The reason for that is that soybean imports are very important to their domestic economy."

USDA trade data shows that US soybean commitments to China are already down by 18pc for the year without any tariff in place as the Chinese implemented more stringent foreign material standards for US soybeans in December.