March 14: Can Trade War Talk Be a Good Thing for Soybean Prices?

No one wants a trade war. But if we’re looking to move crop right now, this talk about China retaliating could be a good thing… until the other shoe drops.

No one wants a trade war. But if we’re looking to move crop right now, talk about China retaliating can be a good thing… until the other shoe drops. Let me explain.

On Friday, we saw a lot of profit taking in the wake of the March WASDE report. But even with prices at some of the most attractive that we’ve seen in a while (the July 2018 contract is at levels that it hadn’t touched since January 2017), the selling hasn’t accelerated.

So what gives?

As you know, China is considering retaliatory efforts against the U.S. over recent steel and aluminum tariffs. President Donald Trump has also floated a new series of restrictions on Chinese trade, including indefinite tariffs, investment restrictions, and perhaps even the temporary barring is Chinese citizens traveling to the United States.

Most analysts are expecting that China may place restrictions on U.S. soybeans as the first step in a broader trade war. But all that chatter has created an interesting situation down in South America.

While Argentina’s crop size continues to decline in the eyes of analysts, the robust Brazilian crop isn’t moving at the pace one might expect. In addition to harvest delays, farmers in Brazil has been holding onto their soybeans with the hope that China does place restrictions on American beans. Last week, Brazilian farmers started to get a significant premium for their soybeans, which pushed local prices higher. We’re seeing big premiums on deliveries for April and May due to Chinese buyer concerns about restrictions.

Meanwhile, short-term support for the market has still allowed U.S. farmers to continue moving old crop beans at attractive prices. 

Naturally, if China makes its move, we’ll see a sharp reaction in the U.S. markets. That will be a short-term reaction. Over the longer-term, we anticipate that U.S. farmers will be able to send soybeans to new markets. The Soybean Export Council needs to start marketing now.

Brennan, Adrian and I will be chatting today about our view on global factors and if we want to make any remaining move on our remaining old crop position. Stay tuned.

 

Brazil soybean rally fades, sellers retain beans on Trump trade talk

Soybean prices in Brazil eased Monday after a two-and-a-half-week rally, but sources say talk of a trade war is making farmers wary of selling.

Soybeans in the paper Paranagua market for April loading changed hands at 86 cents per bushel over May’s exchange contract on Monday versus 88 cents last week.

While that decrease is marginal, it represents the first daily fall since February 22 – when prices were pegged at 50 cents over May futures.

Camilo Motter, a broker with Brazil-based Granoeste, said that despite a weaker market on Monday, premiums could rise once again as the market waits to see whether China will take retaliatory action over US taxes on steel and aluminium imports.

“I think there are a bunch of Trump’s decisions that is weighing on the market’s behaviour. Brazilian farmers are paying attention and asking more in order to sell,” he told Agricensus.

Data released Monday by the farm economics institute (IMEA) of Mato Grosso, which produces around 30% of all Brazil’s soybean, said farmer selling stood at 62% of this season’s crop by the end of February, down 9% on the previous year.

Meanwhile, other brokers said that bids and offers were hard to come by with sellers seeking bids and buyers seeking offers, both with little success.

“It seems that no one knows what’s going to happen next month,” said Eduardo Felau, a broker with Zairam Commodities.

Offers of full 60,000-mt cargoes out of Santos for late April were heard at 90 cents over May futures late Monday.

That price is flat to the paper market, which deals in smaller volumes, and sources say it could be a sign that the bull run has at least stalled.

Nevertheless, March loadings look healthy with the vessel line up showing 8.6 million mt are to load.

H/T: Agricensus
About the Author
Garrett Baldwin

Garrett Baldwin is a content strategist and editor at FarmLead. He covers the global grain markets and public policy issues related to the agricultural industry. He is a graduate of the Medill School of Journalism at Northwestern University. He also holds a Master’s Degree in Economic Policy from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University, and an MBA in Finance from Indiana University.