Farmers warned against a trade war with China. Now, we’re in one and the value of U.S. soybeans is dropping, almost daily. According to John Heisdorffer from Iowa, president of American Soybean Association, “soybean prices are declining as a direct result of this trade feud, down almost a dollar and a half per bushel since the end of May.” He says it amounts to over $6 billion in losses on the 2018 soybean crop in less than a month.
Farmers are now hoping for a resolution to the back and forth tariff announcements, and a comeback in the market. HAT asked Arlan Suderman, Chief Commodities Economist at INTL FC Stone, what kind of recovery could be expected if and when resolution happens.
“The harder you fall, the bigger the bounce is typically the pattern in life and the pattern in the markets as well,” he said, “so, typically we would expect that there would be a significant bounce back in the markets. I call it a bounce rather than a full recovery because I don’t know if we can say there will be a full recovery, but we could get a significant bounce.”
The timing of recovery depends on timing of a resolution to the dispute.
“It could come within the next 24 hours or the next 24 days, or it could be the next several months,” he said. “We don’t know this because these negotiations between the United States and China are about more than just soybeans. They have a wealth of other issues involved as well, including intellectual property rights, the South China Sea and North Korea. China sees them all as one issue. They don’t compartmentalize as we do.”
Meanwhile U.S. soybean prices are the cheapest in the world and that has sparked buying from other end users around the world, and eventually China will still need beans from the United States after consuming all of what it can get from Brazil. But Suderman sees longer term issues for American soy growers.
“We see declining growth rates in soymeal demand in China as they produce more and more DDGs with their new ethanol plants coming on. We’re already seeing crush margins being hurt by the added DDGs on the market and we (FC Stone) are much less aggressive in our soybean demand for China for the 2018/19 marketing year. Meanwhile these higher prices in Argentina and Brazil combined with the cheap currencies they currently have are expected to encourage widespread expansion of soybean production when they plant again September of November of this year.”
All of that suggests coming pressure on the U.S. soy market and more reasons why
American Soybean Association says it has “approached the Trump Administration repeatedly and implored them to hear our side of this story. ASA is disappointed and highly concerned that trade tensions continue to ratchet up rather than deescalate between the two countries and that its repeated requests to the Administration for a non-tariff solution that does not threaten the market stability and livelihoods of soy growers has not been put forward.”