Some Nebraska farmers have said they aren’t too concerned with the ongoing trade tensions with China, the largest customer for U.S. soybeans. If the tensions were bad for the soybean market, they state, soybean prices would have dropped. Price haven’t dropped, so the Chinese trade tensions are not a problem. Sometimes, though, timing is everything—could it be the timing of rising Chinese trade tensions coincided with other market happenings which mitigated any price response?
Veronica Nigh, and economist with American Farm Bureau, recently examined the impacts on U.S. soybean exports of the trade tensions between China and U.S. Nigh focused on four key dates related to the threatened U.S. tariffs on steel imports from China. The U.S. tariffs were the initial salvo in the escalating trade tensions. Figure 1 compares lost U.S. soybean sales to China for this marketing year (blue line) to last year (orange line). The four green vertical lines correspond with the four dates noted above. As Figure 1 illustrates, lost sales of soybeans to China this year already exceed the total accumulation of lost sales during the entirety of last marketing year. And the rapid accumulation of lost sales this year coincides precisely with the opening salvo in the trade tensions. Nigh notes soybean exports to China are down, and there doesn’t seem to be a large volume of sales waiting to be exported. As a result, the most recent forecast of overall U.S. exports of soybeans is lower for this marketing year compared to last year.
Yet despite lower projected soybean exports, soybean prices remain stable. The August futures contract for soybeans was trading at roughly $10.20 per bushel at the beginning of December, and now in early June, it is trading around $10.16 per bushel. If exports sales of soybeans are down, why are soybean prices remaining relatively stable? The tensions with China need to be put in a broader global market context. Argentinian production this year was off considerably due to a severe drought. Also, planted soybean acres in the U.S. are expected to be less than last year, which could mean less production. And, the wet and cold April put the fear in the market of a problematic planting season. Overall world demand for soybeans and its byproducts remains strong. And finally, the recent truck strike in Brazil has slowed the movement of Brazilian soybeans to market. All these happenings have worked to prop up soybean prices.
So, perhaps U.S. soybean producers are lucky the trade tensions with China have occurred when they did. Without all the other happenings in the market, prices might have more readily responded to the trade tensions. But who knows? Perhaps the trade tensions are reflected in prices, and prices would have been higher without the tensions with China.
Jay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and a firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide an in-depth examination of key issues affecting Nebraska’s farmers and ranchers.