US economy

Snap AV: soyabean saga

In just two weeks time, President Trump and Chinese leader Xi Jinping are set to meet in sunny Buenos Aires, Argentina for the G20 summit. Whether the two heads of state can leave with a deal in hand to tame the trade war is anyone’s guess, but soyabean farmers are holding out hope.

Deutsche Bank’s Torsten Slok put out an alarming chart Friday, showing the absolute cratering of US soyabean exports to China this year. Since January, US shipments of the legume have fallen 98 per cent:

For the farmers who harvest the crop, their livelihoods were more or less destroyed as the trade war racheted up.

The US has imposed tariffs on $250bn worth of Chinese imports and has threatened to jack up the rate, from 10 per cent to 25 per cent, on $200bn of that total in January, should China retailitate further. Already, China has levied duties on $110bn worth of US imports, or roughly 85 per cent of what comes into the country from the States.

For Citi’s Aakash Doshi, the worst may in fact be over. At least that’s what soyabean price differentials tell him. China purchases two out of every three soyabean bushels available for foreign trade, and the US and Brazil sell about 85-90 per cent of the soyabeans that China imports, says Doshi. So the price of US Gulf Coast soybeans for export, compared to the FX-adjusted soyabean export price at major Brazilian ports, can tell us a lot about the status of the ongoing trade negotiations.

After China slapped 25 per cent tariffs on US soyabeans in July, the US soyabean export price premium plunged. Now, it’s trending up again:

But seeing how past negotiations have fared, perhaps soyabean farmers shouldn’t hold their breath.

Related Links:
The China pig put – FT Alphaville
What soyabeans teach us about tariffs – FT
Why soyabeans are the crop of the centur
y – FT

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