World Grain - August 2018 - 18

GRAINMARKET REVIEW

Oilseeds
U.S.-China trade war hits
soybean market
by Chris Lyddon

U.S. prices received for soybeans
(dollars per bushel)

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2018

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China's decision to put tariffs on U.S. soybeans as part of trade tension
between the two countries has proved hugely bearish for the world's
oilseeds market, although the likelihood that Europe's rapeseed crop will
be much smaller this year has shown to be supportive.
The USDA's Economic Research Service headed its Oil Crops
Outlook report, published July 16, with the headline: "Soybean Prices
Plunge to a 9-Year Low."
"Soybean prices collapsed in June under the combined pressure of favorable U.S. growing conditions, an increase in sown acreage, large oldcrop stocks, and China's tariff hike on imports from the United States,"
the ERS report said. "On June 1, cash soybean prices for central Illinois
were $9.86 per bushel ($362.29/tonne) but by early July had plummeted
to just above $8 ($293.95). Not since December 2008 have prices for the
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ties, post-harvest prices this fall are liable to be even lower."
Domestic crush margins in 2017-18 are exceptionally strong and will
remain so well into 2018-19, the ERS said.
"Currently leading the charge for domestic processors is a higher demand for soybean products," the ERS said. "With a decline in Argentine
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On soybean oil, the agency pointed out that demand in the United
States is getting a boost from competitive prices and supportive policy
decisions, explaining that the Environmental Protection Agency proposed on June 26 to increase renewable fuels blending, something that
would mean more demand for biodiesel. Noting China's decision to respond to U.S. trade action by implementing a 25% tariff on soybeans
and other products from July 6, the ERS said that China's importers
could still bring in U.S. soybeans as they usually do.
"Typically, at this time of year, U.S. sales to China experience a sharp
seasonal decline as the country increasingly relies on competing suppliers and the stocks already accumulated," the ERS said. "For 201617, only 9% of U.S. exports to China were shipped in the April-August
period. By the end of summer, though, U.S. export sales to China for
2018-19 may start to lag."
Brazilian exporters will replace U.S. supplies to China.
"This role will last as long as the cost to import from Brazil does not
rise substantially above U.S. origins (including the higher tariff)," the
ERS said. "If the impasse over trade is not resolved, the long-term stakes
for the U.S. soybean market are considerable."
China accounted for 62% of U.S. soybean exports in 2016-17. The
ERS also pointed out that U.S. supplies might replace Brazilian soybeans diverted to China in some markets.
The July 12 USDA World Agricultural Supply and Demand Estimates report proved bearish with a sharp rise in forecast U.S. soybean
ending stocks. The USDA now sees 2018-19 soy ending stocks at 580

Source: USDA National Agricultural Statistics Service

million bushels (15.79 million tonnes), compared to 385 million (10.48
million tonnes) forecast a month earlier and 465 million (12.66 million
tonnes) the year before.
The U.K.'s Agricultural and Horticultural Development Board noted
in a report on July 16 that "Chicago soybeans continued to decline last
week as a bearish WASDE release and continued trade tensions weighed
on prices," noting that the Paris MATIF market also fell, but was supported by concerns over European rapeseed production.
The AHDB also highlighted new estimates from the Association
of German Farm Cooperatives (DRV), cutting its estimate for winter
rapeseed production to 3.55 million tonnes, 500,000 less than forecast
in June and a 16.8% decline when compared with the previous year. The
DRV noted on its website that the forecast was even worse than had been
expected and represented the lowest crop in the last 10 years. The British
sector body also cited a French government forecast putting the rapeseed
crop there at 4.6 million tonnes, down 300,000 from an estimate made
in June and down 15% on the previous year's crop, a decline attributed
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The International Grains Council (IGC), in its July 2 Grain Market
Report, said a combination of trade tension between the United States
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in export values for all origins for June.
"Nearby U.S. futures slumped by 17% month-on-month in response
to an escalating trade dispute with China and its potential implications
for import demand," the IGC said. "Aside from a period of dryness and
heavy rains in some areas, weather patterns were mostly favorable for
U.S. crop prospects."
On rapeseed, the IGC said Canadian canola futures were mostly
shaped by movements in soybean markets, the nearby (July) position
decreasing by 3% month on month.
"However, further declines were capped by continued uncertainty
about production prospects across the Canadian Prairies and ideas of poWHQWLDOGHPDQGIURP&KLQDZKLOHFXUUHQF\PRYHPHQWVZHUHLQÀXHQWLDO
at times," the IGC said.
Chris Lyddon is World Grain's European correspondent.
He may be contacted at: chris.lyddon@ntlworld.com.
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August 2018 / World Grain / www.World-Grain.com

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World Grain - August 2018

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