The swine epidemic in China and the trade war threaten soy

At a time when Argentina desperately needs the inflow of dollars to contain its current account deficit, news from the financial markets of its main export commodity is not optimistic. There is a real risk of collapse of the international soybean price, due to a very complicated situation that is taking place mainly in China, but in which the United States, its main trading adversary, are also involved.

Since Donald Trump's government a year ago decided to impose higher tariffs on many of China's exports to the US market, and the Chinese authorities have responded to these measures, commercial war between the two world powers has destabilized the country. financial markets, which also affected soybean prices.

The fruit of this commercial escalation is that between early May and mid-July 2018, the price of soybeans will plummet 21% in the Chicago market. Since then, he has never been able to recover the values ​​he had before the start of the trade war between the two powers. And that, no matter how much, at the end of last year and early 2019, contributions have increased a bit, at the rate of news that has arrived regarding the opening of a series of negotiations to resolve the conflict. Rounding at first would last 90 days, but it takes longer than expected, which has an impact on the volatility of oilseed prices.

For US farmers who grow soybeans, resolving this conflict is essential, as China is their main export market and further escalation will hit them again in the rest of the world. They are the first victims of the import brake "Made in the USA" enforced by the Xi Jinping government whenever its US counterpart adjusts the tariff withers.

But while trade retaliation first affects US producers, other farmers in the world are also suffering from the ups and downs of this struggle they are observing from the platform. The sharp price drop that has occurred over the past year is a true reflection of what everyone is losing, including Argentina, where there is so much noise in the market.

A political product

Precisely, badysts already consider that the volatility suffered by the price of soy has stopped depending mainly on climate or speculative factors that normally occur on the financial markets. Since the beginning of the trade war between the United States and China, soy has become a product with a very significant political burden, perhaps as much as oil or other energy products. Therefore, as long as no agreement on trade issues is reached, price fluctuations will be significant.

Therefore, from the point of view of the agricultural producer who must make sowing decisions with a predictable horizon of several months, the fact of not having references to form forecasts of future prices should also affect the area sown to soya . , in case of trade dispute between the United States and China is not resolved soon.

The main threat

But all this could be a minor inconvenience in the face of today's biggest threat to the price of this staple product: for several months, rural areas in China have been suffering from an epidemic of deadly viruses that liquid pigs.

Pork is the meat most consumed by the Chinese and, in turn, this animal represents the bulk of soybean imports from the Asian country. This is why it is scandalous for soybean producers around the world that the Chinese government has not yet succeeded in containing the outbreak of African swine fever that is affecting its livestock.

The virus is very contagious and kills the animals in a few days for which there is no vaccine or treatment to protect them (apparently, it would be harmless in humans). As a result, the government has decided to sacrifice all affected hogs, which already exceed one million.

According to Rabobank badysts, the hog inventory had already decreased by 15% in 2018 and it is estimated that pork production will decrease by 30% more this year, a volume similar to that of Europe. . And that, to recover the stock before the epidemic, it will take between three and five years.

With regard to Chinese soybean imports, the effects of swine fever have already been noted: in the first quarter of 2019, they decreased by 14.4% compared to the same period of the previous year. Even the INTL FCStone consulting firm estimates that China's soybean purchases could be reduced over the next two crop years, which has not happened for at least 15 years.

According to Arlan Suderman, the company's commodity specialist, "it is almost impossible for the Chinese government to stop the epidemic". This is due to the fact that the animals are raised in small family farms that do not respect the sanitary rules imposed by the authorities. "This is not in the culture of Chinese producers, so the outbreak can last for years," he warned. In the end, the Chinese horoscope hit: it's the year of the pig.