Threat of China tariff on US soya sparks early sell off

05.04.2018

China has retaliated to the US imposition of tariffs on its steel by publishing a list of 106 US goods, including beef, corn products, cotton and soybeans, on which it intends to levy additional tariffs of 25%. The list is reported to comprise some $50 billion worth of US exports.

CBOT soybean futures fell in early morning trading, with the nearby contract down 4.7% to $9.89-1/2 a bushel although it has recovered to $10.11-1/2 later, a 2.58% fall on the previous day’s $10.38/bushel close. May corn had fallen to $3.73 a bushel, recovering to 4 points down to $3.84-1/2 a bushel.

It is not clear when either side would actually start to levy import tariffs, although analyst Benson Quinn says “It is widely believed that US measures would not take effect until about 6 weeks from now.”

Soybean prices will rise

Rabobank comments that the full 25% duty on US soybeans and cotton into China is not yet priced into markets as it is still only a threat, with no clear timeline, although it warns that physical soybean prices in South America and in China will rise.
 
It adds that the move will drive US soybean exporters to ship soybean consignments already sold to China as quickly as possible, in order to clear customs in China before the duty is implemented. This would support physical US prices in the short term.

But Reuters’ Terry Reilly projects that a 25% import tax on soybeans would “essentially shut off US soybean exports to China”, at least for a few months, at a time when USDA export sales are already down due to China resisting US origins where possible.

Compromise on soya levy?

China, the world’s largest importer of soybeans at some 100 million tons a year, might find it difficult to replace the volume, so there might be a compromise deal before the levy bites. “We believe the US will move quickly in resolving soybeans under this trade dispute,” he states. “It’s in the best interest for China to do the same before the 2018-19 US harvest comes online.”

But Mr Reilly thinks the USDA could lower China’s soybean imports by at least 5 million tons in its upcoming monthly WASDE report, and lower the soybean crush by 2-3 million tons.

In Europe, today’s trade in soybeans, soymeal and soyoil reportedly came to a standstill, with sellers reluctant to issue prices as news of the Chinese tariff proposal broke.

"Sellers were holding back waiting for the dust to settle on Chicago futures," one broker told Feedinfo.

But some traders believed that prices will return to prior levels as the trade dispute doesn’t alter the fundamental tightness in soybean supplies. The International Grains Council has forecast that global soybean consumption will exceed production in both the 2017/18 and 2018/19 seasons.

Cotton futures down

Turning to cotton, the Rose Commodity Group says cotton futures have dropped sharply on the tariff news, with ICE May cotton futures down 312 points and December off 189 points.

“However, the US has only (sent) modest quantities of raw cotton to China in recent years and the US will likely be able to sell cotton that is not feasible for delivery into China with an additional 25% duty into other destinations,” the broker notes.

“Overall, the imposition of such duties probably does not affect (over the medium- to long-term) US merchant’s abilities to market US cotton, but cotton futures will likely suffer as speculators liquidate their net long position.”
 
Rabobank says cotton import tariffs will favour prices of non-US crop origins, particularly from Australia and Brazil.


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