Category: Uncategorized

05 Feb 2020

The Chinese trade war is affecting American soybeans

Sure is tough to be an American farmer these days, with headlines like this popping up around President Trump’s ongoing trade war with the Chinese:

Nowhere is this pain being felt more than in the Soybean market, which is the second largest financially important crop in the U.S., with $41 Billion with soybeans grown in 2017 behind Corn at $48 billion. China is the world’s biggest importer and America’s largest customer in a trade worth $14 billion in 2017. But while it makes for a good headline, that 42-year-low was only about 10% lower than where the market had been a few weeks prior, and only about 3% lower than where prices headed after the initial skirmishes in the trade war last summer. In more finance geek speak – this is not a black swan event, as we’ve known about this market risk since at least May of 2018.

But that doesn’t leave the farmers in any better of a place, especially with all of the rain and wet conditions that have been seen across the Midwest, and we’re seeing that in terms of acres of Soybeans being planted dropping significantly. Here’s the USDA showing just 19% of the Soybean crop is in the ground so far, compared with 47% usually seen by this time of year on average between ’14 and ’18.

We caught up with Doug Bergman, the head of RCM’s AG Trading desk and publisher of daily Ag research for his thoughts on the choices facing the nation’s Soybean farmers:

In my opinion, the easiest way to see the impact is to look at the cash soybean price in Brazil (purple line) vs. cash bids in the US (orange line). You can see the dramatic drop in U.S. prices vs. Brazil last spring and then a small move that started just recently when news broke that a trade deal was not likely to get done. Beyond that, there is a lot of uncertainty regarding another round of government support and what farmers should decide to plant this spring. Planting is delayed due to wet weather, which is leading many to consider taking preventive planting insurance payments. If there is another round of government support payments, the producers that took an insurance payment rather than raise a crop would be left out of the government payment. So do you take the lower risk approach and collect insurance to maybe breakeven, or do you plant beans into less than ideal conditions expecting another government bailout where if the weather cooperates this summer could end up being profitable.


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