Soybean futures 'may fall sharply' if China-US trade war kicks off

02.02.2017

Chicago soybean futures may "fall sharply" if the US enters a trade war with China – but prices in Latin America would benefit, Societe Generale said, terming the risk of a levy battle a "major concern".

The mandate voters have given Donald Trump, who became US president last week, to "correct the trade balance" with countries such as China, Japan and Mexico from which the US imports far more than it exports "has raised concerns about a trade war", SocGen said.

Indeed, these nations may invoke "retaliatory measures" should Mr Trump, whose administration has floated ideas of a 20% tax on US imports from Mexico, realise such threats.

And with agriculture one area in which the US does export large amounts to China, Japan and Mexico, crops may find themselves in the front line of a trade battle, a factor which would be "detrimental for US farmers".

'Negative catalyst for prices'

"Certainly, a trade war is a major concern for US ag exports to China, Mexico and other countries," SocGen said, flagging threats by Beijing officials to slap duties on US soybean imports should Mr Trump's administration tax US purchases from China.

Already, decisions by Mr Trump to withdraw the US from the Trans-Pacific Partnership (TPP) trade deal, and to propose renegotiation of the Nafta treaty, have provided "another negative catalyst for agri commodity prices", the bank said.

In battling with Mexico, the US would be facing off with the top buyer of US corn, with China the biggest buyer of US soybeans.

"Trade disputes with China can present a negative catalyst for US soybean prices," SocGen analyst Rajesh Singla said.

Sould Beijing slap a 20% duty on Chinese imports of US soybeans "Chicago soybean prices might fall sharply due to uncertainty on US soybean exports".

South American vs US prices

By contrast, soybean prices in China itself - where September futures on the Dalian exchange have soared 30% since Mr Trump was elected three months ago - would likely see a "further increase".

And values would rise too in Latin America, which would likely benefit as China sought alternative soybean suppliers.

"South American soybean prices will trade at a premium to US soybean prices due to a shift in demand from US to LatAm," Mr Singla said.

"The import duties on US soybean might make soybean even more profitable than corn for LatAm farmers."

'Very critical'

China is also likely, whatever, to raise its own soybean output, to cut its reliance on imports.

"We should see a substantial increase in soybean acreage in China in 2017," Mr Singla said, adding that that crop "has become more profitable for Chinese farmers".

However, he also noted the potential for Beijing to go easy on tariffs on imports of US soybeans, given China's inability to source all its needs from elsewhere.

"In the event of trade disputes, we believe that import duties might not be significant, as soybean supplies from the US are very critical for China."


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