May 14, 2019

Soybean futures plunge to lowest in a decade as US-China trade war escalates

The still-unresolved US-China trade war has led to soybean futures dropping to their lowest level in a decade as it appears unlikely that China will resume purchases of US beans, Bloomberg reported.

On May 13, soybeans declined to below US$8 a bushel for first time since 2008 following China's announcement that it will increase tariffs on US goods in response to the latest US tariffs. Beans for delivery in July pared losses to finish at US$8.025 a bushel after US President Donald Trump said he will meet with China's Xi Jinping at the Group of 20 summit in Japan in June.

The latest escalation in the trade war came after Trump accused China of attempting to walk back on certain aspects of an agreement to resolve the dispute. The development had affected the outlook for soybean demand as American farmers sow the next crop. To demonstrate its sincerity during the trade talks, China had acquired several rounds of soybeans earlier this year.

Now, the trade dispute could potentially lead to the cancellation of some US goods like soy and pork before delivery could even begin, according to Ken Morrison, an independent analyst. China has purchased about 7.4 million tonnes of US beans that have not yet been shipped, USDA data showed.

The stalling of negotiations also prompted Trump to pledge US crop purchases to offset the slower sales to China. Still, it is unclear how far that would go to solve the current supply overhang.

US farmers are already badly affected by the trade war, which started a year ago and had curtailed soybean exports. As a result, prices had plummeted and hit grower incomes.

This month, the USDA released its closely watched monthly crop outlook, forecasting rising domestic stockpiles in its first guidance for the upcoming season.

"The USDA report has been quite bearish... and has added to the gloomy atmosphere in place on agricultural commodities due to the endless and tense trade discussions between USA and China," Paris-based farm adviser Agritel said in a note.

- Bloomberg