The Trade War And A Changing Market For Soybeans

As the 2020/21 USDA marketing year begins for U.S. soybeans, exports of the commodity appear to be entering positive territory. The USDA reported that on August 26, China purchased 400,000 metric tons of U.S. soybeans. That's one reason the agency now forecasts U.S. soybean exports to rise $4.2 billion in fiscal year 2021.

This follows the start of the phase one trade deal between the United States and China in early 2020. However, up to this point, the trade tension that began in 2018 between the countries had disrupted some of the price relationships between the United States and Brazil, the world's other major soybean producer.

"Incredible growth from China led to a big increase in demand for grains and oilseeds," Fred Seamon, Executive Director of Agricultural Research and Product Development at CME Group says in the roundtable discussion above. "Brazil was able to meet that demand because they had a lot of new land that they could put into production. So the price relationship between Brazil and the U.S. became really important, especially in soybeans."

China bought 10.5 million metric tons of soybeans from Brazil in June, a record. In the same month, U.S. soybean exports to China fell by 56% from the previous year.  In recent years, Brazil has surpassed the United States both in soybean production and share of global soybean exports.

China consumes more than 100 million metric tons of soybeans each year, while total world consumption is expected to be about 370 mmt for the 2020/21 crop year.

"Soybeans are a major important component within the Chinese consumer price index," says Jack Bouroudjian, chief economist and co-founder of UCX Tech. "So it's imperative, especially for the Chinese central committee to keep the price of soybeans stable. So their supply chains are going to be absolutely vital over these next few years."

A falling dollar could help continued U.S. competitiveness in the soybean market, according to Joe Vaclavik, founder and president of Standard Grain.

A weaker dollar could lift soybean prices as U.S. farmers look to stay competitive. Insights via @CMEGroup pic.twitter.com/ooP2jhZWA3

— Bloomberg QuickTake (@QuickTake) June 10, 2020

However, Seamon says that though the dollar has weakened in 2020, it remains "relatively strong" versus the currencies of other major agricultural producers like Brazil, Argentina and Ukraine. "As long as that continues, that will encourage farmers in those countries to continue to increase production," says Seamon.

The currency picture could also affect commodity prices if the Federal Reserve continues the quantitative easing policy it enacted in response to the economic effects of COVID-19. There is an inverse relationship between the dollar and commodities, and Bouroudjian says the dollar could continue to get weaker, and a floor could be established under soybeans and other commodities.

Watch the full OpenMarkets Roundtable on soybeans and trade above. 

The post The Trade War and a Changing Market for Soybeans appeared first on OpenMarkets.

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