China tariffs on US soybeans threaten fertilizer demand

Volatile soybean prices stemming from recent Chinese tariffs have raised concerns among US fertilizer groups about its potential impact on fertilizer demand for the fall.

Soybean prices have dropped by 11pc to$8.14/bushel since 15 June, when the US announced tariffs on $50bn worth of Chinese goods. China imposed a 25pc tariff on US soybeans, as well as other goods, on 6 July.

The decrease in soybean prices may lead to a reduction in US fertilizer demand moving forward because of diminished profit margins. As US farmers prepare for the fall harvest, there is potential for reductions or delays to fertilizer application.

US farmers have already felt the strain of Chinese tariffs and have already reduced purchases of farm equipment for the fall harvest, according to the American Soybean Association (ASA).

China has been the leading buyer of US soybeans since 2000, according to the US Department of Agriculture (USDA). China took 61pc of US soybean exports in 2017 (accounting for 31pc of overall US production), and Chinese demand is anticipated to account for most of the growth in global soybean trade during the next 10 years, according to the ASA.

The ASA said China's growing appetite for soybeans underscores the need for action in Washington.

"While trade tensions with US soy's largest customer continue to escalate, soy growers from across 30 states are in Washington, talking with the members of the Administration and Congress, urging them to rescind these tariffs and bring a sense of stability and certainty back to farmers who depend on trade," said ASA president John Heisdorffer.

The market will tentatively look to return to equilibrium with a potential market shift in soybean buyers as prices plummet. Mexico has been the second-largest importer of US soybeans since 2004, followed closely by Indonesia and Japan. Egypt is an arising new market participant in 2018 with an increase in imports of US soybeans by 174pc to 1.4mn t from January to May since the same time period in 2017, and is now the third largest importer behind Mexico and China, according to the USDA.

"We need to remember the lesson of the Nixon soybean export embargo in June of 1973, which caused our buyers in Japan and Europe to seek new suppliers and led to a dramatic expansion of the soybean industry in Brazil. Trade disruptions have serious and lasting long-term consequences," the Agricultural Retailers Association said.