The economic world has its eyes on soybeans. This is the result of a trade war between the United States (US) and China. The 2 most important: airplanes and soy are protected, but for how long?
Airplanes and soy accounted for the largest American export share to China in 2017. Despite the import duties (of 15% and 25% on 128 products), economists are therefore not deeply shocked. The most important items remain safeguarded for the time being.
China's hunger for soy
China imports hundreds of millions of tons of soybeans worth $1 billion. This volume largely comes from the US. The country buys more soy than all other export destinations combined and half of its total production is destined for China. Discussion among agricultural commodity traders now is whether other soy producing countries can satisfy China's enormous hunger.
Since the beginning of this year, China's purchasing strategy has been shifting. For example, soy purchases from the US fell by 17% in January. It still has almost 70% of the market and 1 year earlier this was almost 90%. Brazil in particular is benefiting from this. In percentage terms, exports to China increased by 720% in January compared to 2017. The Brazilian market share is only 3%.
Best boy in class
Soybeans have long been the top kid in the class in terms of financial returns in the US. According to figures from the American Department of Agriculture, the USDA, the soy area exceeds that of grain corn; this is the first time in 35 years. An initial expectation is 89 million hectares, compared to 88 million hectares for corn. Last year this was 90,1 to 90,2 million acres. At 47,3 million hectares, wheat is the second lowest acreage since 1. In 1919 this was still 2017% lower.
China's actions could have a major impact on crop farmers in the Midwest and on US export values ($12 billion). The blow to China itself is even greater. Own cultivation is not sufficient to provide the country's enormous livestock sector with sufficient raw materials. Feed factories and pig farmers are faced with shortages. For this reason, the country started importing sorghum this year, as an alternative to protein-rich soy. In any case, it is preferable to grain corn.
Importing feed raw materials has another important advantage for China: it is cheaper than locally produced product. For example, the country has no GMO soya and the yield and quality are lower. There is far too little agricultural land in the country to grow sufficient crops.
Consequences for Europe
The European grains market could be affected by the trade war as traders become nervous. Some insiders see it positively. China's hunger for raw materials is enormous. Brazil alone cannot appease this and Argentina has a small harvest due to a severe drought. This can trigger a price-raising effect. The Australians, for example, also hope for this, with their large sorghum harvests.
In the short term, China is hurting itself if it imposes heavy tariffs on soy, despite its mega reserves. US President Donald Trump is now introducing new tariffs on Chinese products. This can have major consequences. For Chinese agriculture, but also that in the US. Where should American farmers go with 50% of their harvest?
Also read: Why China Strikes Back With Pork en Trade war also affects grain market