Trade War breaks out on the export of US No. 1 farm to China

China's new tariffs on American soybeans – which they effectively enter into force on July 6 – herald a major commercial change for a crop that has grown in importance in recent decades.

While the Asian nation is targeting an American commodity farm in this series of taxes, soybeans are the main agricultural commodity that the country imports from far away from the United States. Oilseeds, used to make cooking oil and animal feed, account for about 60% of US $ 20 billion worth of agricultural exports to China. If China retaliates with 25% tariffs, US shipments could drop to at least $ 4.5 billion, according to a study from the University of Tennessee. Brazil, already the world's largest sender of soybeans, is expected to be the biggest winner, filling the void left by the United States

U.S. Price

The announcement of the tariff has already weighed on soybean prices. The most active soybean futures on the Chicago Board of Trade fell 14% in June, as tensions rose between the United States and China, the biggest loss in four years. As the demand is threatened, the supply seems strong. Brazil has harvested an exceptional harvest at the beginning of the year. US farmers have planted one of the richest soybean areas and growing conditions have been favorable so far this season.

Imports from China

China is the world's largest consumer of soybeans and remains heavily dependent on imports to meet demand. This is why the country's buying habits have a disproportionate influence on world prices. By imposing tariffs on US agricultural products, China is targeting one of the few sectors of the US economy that is experiencing a trade surplus at a time when net farm income is expected to fall to its lowest level. in 12 years. Soy is one of the largest US products exported to China, just behind civil aircraft and motor vehicles, according to Bloomberg Intelligence analysts Alvin Tai and Chris Muckensturm in a report

Price in Brazil

Brazil is the world's leading sender of soybeans since the 2012-13 season. Its lead has widened compared to the United States in recent seasons, and Chinese tariffs could be used to accelerate Brazilian demand. Brazil generally dominates global shipments at this time of year, while the United States take over from October to January, after harvest.

gains in soybean production, stimulating rivalry at the # 39 export. Soaring world soybean prices in the mid-1970s prompted the government to invest in technology to adapt the crop to the country's weather and soil conditions. This has created successful seeds that have allowed planting in the Cerrado region, including what is now the leading producing state, Mato Grosso. The biggest jump in acreage has occurred since 2000, as demand from China increased.

Premiums in Brazil

As China formalized its plans last month to take action against US agricultural products, soybean premiums in Brazilian ports have skyrocketed. The demand for South American supplies has even increased while US futures are falling. Soybean prices in the United States could have an "increasingly severe" impact if trade tensions persist during harvesting, CoBank analysts said in a report. According to Bloomberg Intelligence, China can also replace part of its demand for soybeans by using canola or rapeseed flour.

How long will the tariffs last?

The long-term impact is less certain. Brazil does not export enough soybeans to meet China's only demand, and there are few other large shippers than the United States, which will start harvesting their next crop in September. Argentina is a major producer of oilseeds, but it exports more commonly processed forms – flour and oil. According to a Rabobank report, the decline in Chinese demand for the US supply could be partially offset by the increase in exports to destinations such as the European Union.

China still has about 1.14 million tons of soybean sales in circulation. 31, although some cargoes have recently been traded for delivery to countries like Bangladesh and Iran, according to data from the US Department of Agriculture.