Soybean prices slumped by nearly 4% after China announced that it would introduce U.S. soybean tariffs.
China announced a new list of 106 U.S. products that included a number of agricultural products in addition to chemicals, whiskey, automobiles, and aircraft. The announcement fueled a sharp selloff across the equity markets. The Dow Jones shed 107 points on the day. China’s decision comes shortly after the Trump administration announced plans to place 25% tariffs on 1,333 Chinese products after an investigation into state-backed intellectual property violations.
Here’s our weekly recap from the Chicago Board of Trade.
Soybean Prices Crater on Tariff Talk
May soybean prices dipped under $10.00 at one point this morning. But the contract closed the day down 22.75 cents to end the day at $10.1525. The July contract shed 22.75 cents to end the day at $10.265.
Down in Brazil, premiums surged by as much as 50 cents after China announced its intentions to slap tariffs on U.S. soybean exports. The decision raises a significant number of questions about the impact of Chinese demand for U.S. soybeans in the future. Today’s news came before the USDA had reported a private sale to China of 129,000 MT. The agency also reported one large old crop sale and one large new crop sale to unknown destinations.
Last week, Purdue University released a report that said Chinese demand for American soybeans could fall by 71% based on a 30% tariff. They projected a 33% decline at a 10% tariff.
Goldman Sachs released a note to clients on the ongoing trade spat between the United States and China. The investment bank stated that China’s decision to slap soybeans with tariffs is a sign of resilience from the nation. The bank noted that Chinese pork demand will not reduce in the future years. Even if China is able to source more soybeans from Argentina and Brazil, there is upwards of 30 MMT in demand that China will still need to obtain. China will need to still secure more supply from China in the future, Goldman said in its research note.
The slide below offers a breakdown of origination for soybeans sent to China. As noted, Brazil has seen a noticeable uptick in export demand in recent years. However, China will struggle to reach its likely demand for more than 100 MMT without U.S. supply.
It’s important to note that China hasn’t set a date for a 25% tariff on the new list of products. The general hope is that U.S. trade officials will be able to hold negotiations and experience a breakthrough to prevent an escalation of protectionism.
Tomorrow, the USDA will report weekly export sales. Analysts project soybean exports to come in at a range between 600,000 MT and 900,000 MT. New crop projections are pegged up to 150,000 MT.
Corn Prices Retreat on Tariff Concerns
Tariff tantrums hit the corn sector today after China targeted U.S. corn, DDGs, sorghum, and beef exports (in addition to the soybean complex and other agricultural goods). May 2018 corn prices fell 7.5 cents to close the day a tick above $3.81. July contracts fell 7.5 cents to close the day just under $3.90.
The Energy Information Administration (EIA) said that daily U.S. ethanol production slipped by 1,000 barrels per day to 1.038 million. The agency also reported a 365,000-barrel decline in weekly stocks.
Tomorrow, the USDA will report weekly export numbers. Trade estimates project that old crop sales will come in between 1 million and 1.3 million metric tonnes. New crop estimates sit between 100,000 MT and 300,000 MT.
HRW Wheat Prices Close the Day Higher
Chicago SRW prices for May delivery dipped 1.75 cents to close at $4.5575. The July contract fell 1 cent to close just at $4.73.
Kansas HRW contracts for May added 1.25 cents to close at $4.86. The July contract added 1 cent to close the day at $5.0425.
In Minneapolis, spring wheat contracts for May fell 6 cents to close at $5.77 per bushel. The July MGEX contract dipped 4.75 cents ended the day a tick under $5.88.
Today, markets were digesting record-low temperatures in certain parts of the Midwest. Wheat traders were still keeping an eye on China.
Tomorrow, the USDA will report Export Sales in its weekly data release. Trade estimates peg old crop wheat exports between 200,000 MT to 500,000 MT. New crop sales for March 29 are pegged between 50,000 MT and 200,000 MT.
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