US soybean industry should say thank you to Argentine peers

03.03.2018

US soybean farmers should say a double thank you to Argentina.

Drought in the South American country has already ensured far higher prices of soybeans (and particularly soymeal of which Argentina is the top exporter), as importers are forced to compete harder for what supplies are available.

The US, where Chicago soybean futures are up 8% over the past month, is the second ranked exporter of the oilseed, after Brazil.

Now, Argentina’s woes look likely to protect the US from the threat of stiff penalties on its soybean exports.

In the firing line

It is understandable why the US soybean industry is fretting over sharp tariffs on its exports.

President Donald Trump has certainly put US exports in the firing line by announcing tariffs on imports of aluminium and steel.

And with many steel exporters, such as China, Japan and Mexico, major buyers of US soybeans, the oilseed is certain to be considered as a target for tit-for-tat levies.

Limited alternatives

But Argentina’s experience should persuade vexed US trade partners that that they are better off directing their revenge elsewhere.

With some 95m tonnes of non-US soybean exports estimated available even including pre-drought estimates for Argentina, and China – which already seems to be limiting its US purchases - expected to take 97m tonnes alone, there is simply not enough of the oilseed to go around from other origins alone.

And squeezed supplies mean higher prices.

Restricting the pipeline of US soybeans would mean importing countries paying a premium for alternatives, and make domestic users victims of punishment aimed at the US.

Geographical hedge

If irate steel exporting countries are to target retaliatory action at US agricultural exports, it is far better to aim at those which are better geographically hedged – that is, for which there are ample alternative supplies.

Take wheat, for example, of which the US is expected by the US Department of Agriculture to export 25.9m tonnes this season, equivalent to a world market share of 14% (compared with the 38% the country claims of global soybean exports).

Given the ready supplies of wheat available in the likes of the European Union, Russia and Ukraine, the grain looks a better target for putting pressure on the US, without risking an own goal.

Between American Soybean Association and US Wheat Associates, farm industry groups which led condemnation against Mr Trump’s steel levies, one should be a significantly more worried than the other.


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