Inside Grains & Commodities
What will the soy price do in the long run?
The soybean quote on the CBoT shot up on Monday, March 4. The quote has been showing such jumps since the start of the trade war between China and the United States, but often falls back afterwards. What is the long-term outlook for soybean prices?
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Choose the subscription that suits youThe price increase for soybeans at the beginning of the week was mainly due to positivity surrounding the trade war between China and the United States (US). For example, American President Donald Trump tweeted on Friday, March 1, that the trade talks are going well and that he has asked China to do so all levies to dispel.
Deal in sight
Zong Shan, the Minister of Trade in China, also indicated that there have been real breakthroughs in trade negotiations between the two countries. However, he did add that there are still major problems. The upcoming deal means that China will lift import duties on agricultural products (but also on cars) from the US. In response, the US will also lift the import tariffs that were imposed due to unfair tariffs on American products.
Although it was promised again last week that China will purchase 10 million tons of soybeans from the US, exporters are still not noticing much of this. Moreover, the US Secretary of State reports that Trump will only agree to a deal if it is 'perfect'. The combination of these messages caused the price of soybeans to fall again.
Price shows yo-yo effect
The quotation therefore shows a yo-yo effect. First, a positive message about the trade war comes out, after which the soy price rises sharply. This is followed by a negative message, causing the price to drop again. The long-term expectation is positive. If a deal is reached between the 2 countries, there is a good chance that the price will return to pre-trade war levels.
This is supported by the fact that the price was already under pressure last year due to a record harvest. This year the global soybean harvest is expected to stock comes true, predicts the report from the World Supply and Demand (WASDE) of the US Department of Agriculture.
No records
The soy harvest in Brazil is estimated at 115 million tons, which is clearly less than the record yield of 120 million tons in 2018. The lower figures are partly due to the drought in the south of the country. In addition, exports from Brazil are also expected to be 15% lower than in 2018.
If trade talks go well and US exports to China return to normal levels, soy prices may even rise to a price level of $350 per tonne or higher. This was approximately the price level before the trade war. However, the US export lag and the outbreak of African swine fever in China must be taken into account.
