Soybeans
is one of the most important American exports. The crop, which is mostly used
in the manufacture of edible oils is mostly exported to China and the European
Union. 60% of all US soybeans are exported to China. As such, its price
continued to decline this week after the United States implemented fresh
tariffs on China. This was the biggest drop since August last year and the
price sits near the 10-year low. In response, China said that it would
retaliate against the US. If it does, it will likely increase the tariffs
already in place on soybeans.
In
the ongoing trade negotiations, one of the Chinese promise is that it would
increase the purchases of US crops like soybeans. While this would be a good
thing, it also exposes US farmers to the challenge, if the country had to halt
the purchases.
Another
major theme in the soybeans market is the current infestation of armyworm in
China. This is an insect that eats top crops like corn and soy and was detected
in China five months ago. According to the US Department of Agriculture (USDA),
this worm could have major implications on the country’s supply of the crop.
This would lead to the need for more imports to fill the gap. This would mean
more demand for US soybeans at a time when Chinese authorities are trying to
increase local production so that they can reduce over-reliance on American and
Brazilian exports. Every year, the country produces 16 million tons of the crop
but imports more than 80 million tons. The new armyworm infestation comes at a
time when China is battling the pork crisis. According to Rabobank, more than
200 million animals could be affected by the African swine fever.
As
shown in the chart below, the price of soybeans has been on a downward
trajectory, The price is trading near a ten-year low of $8.12. On the chart
below, the price is slightly below the 50-day and 25-day moving averages while
the RSI has dropped to about 40. The price will likely continue to drop as the
trade war escalates.
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