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Market Reports


December 3, 2018

 

Soy most affected in US-China trade war as global food price stability faces other risks

 

 

The US-China trade war, disease and extreme weather—these are just three of the threats to global food price stability in 2019 cited by Rabobank, the specialist food and agribusiness bank.

 

In its annual Outlook reports covering more than 15 agricultural commodities, meat and seafood, Rabobank said that ongoing geopolitical tension, the threat of El Niño weather phenomenon and diseases affecting livestock bring great uncertainty to the outlook for 2019.

 

"Food producers face a melting pot of risks. Although it's possible that not all of them will come to pass, they need to be prepared for a difficult and worrying year in 2019", said Justin Sherrard, global strategist for animal protein at the Rabobank.

 

On his end, Stefan Vogel, head of agri commodity markets at Rabobank and report co-author, said: "[I]t's difficult to remember a time there were so many threats to food commodity prices on so many fronts, from trade wars to currency movements to weather threats and livestock disease."

 

In the trade war between the US and China, soybeans are most affected, the report said. China's imports of soybeans is forecast to fall below 90 million tonnes in 2018-19 due to import restrictions. With China, which currently imports 60% of the world's soybean trade, buying from elsewhere, US farmers face an oversupply of soybeans and will likely see stocks more than double to record levels by the end of 2018-19, the bank forecasts.

 

Vogel said China snub of US soybeans is causing American crop farmers financial pain. Additionally, "our expectation that the dollar will remain strong deep into 2019 is also a challenge for them".

 

"Nevertheless", he added, US soybeans are cheaper than Brazilian given levels of surplus crop, with US farmers turning to other soybean importing nations to sell stock".

 

Full recovery of China-US soybean trade unlikely

 

He said China might partly switch back to buying from the US if and when the dispute is resolved, but that a full recovery of this trade flow seemed unlikely."

 

Rabobank also sees US meat and seafood exporters looking to new trading partners outside of China. "This provides a window of opportunity for Brazil, Canada and EU, who will all be looking to fill the demand in the Chinese market for pork".

 

With the US dollar currently at an 18-month high and being anticipated to continue to strengthen into late 2019, US exports is seen to subsequently continue to suffer from a lack of competitiveness abroad, further challenging US farmer profitability.

 

On the other hand, Brazil's weak real has worked to its advantage as it has benefited from China buying more pork. The world's second-largest economy has turned to the South American country-and to Europe- for more pork supplies, which Rabobank expects to continue into 2019.

 

Rabobank, meanwhile, expects the spread of African swine fever (ASF) to continue to have a global impact on pork production, and it will be especially harmful in China with a decline in supply, rising prices and higher imports. Europe also faces an oversupply of pork, and this will become a particular issue if the ASF outbreak hits production levels and results in a drop in export opportunities, Rabobank said.

 

"With the severity of disease outbreaks showing no signs of being curbed, especially in pork and poultry, biosecurity will become a higher business priority for livestock producers in the year ahead. Major outbreaks are affecting global trade flows and consumer preferences, and as a result we expect to see a shift to beef and seafood consumption in some markets." Sherrard said.

 

The weather phenomenon El Niño is also expected to drive further uncertainty across commodities markets. Rabobank said this weather event has an 80% chance of being formally declared by the end of the winter in the Northern Hemisphere.

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