Good Sign for US Farmers: Soybean Prices Signals US-China Trade Deal Progress

Soybean prices may be signaling some optimism about trade, ahead of President Donald Trump's meeting at the G20 with Chinese President Xi Jinping. According to Citigroup strategists, the measure to watch is the price differential between U.S. Gulf Coast soybeans for export and currency-adjusted export prices at major Brazilian ports. That differential has been narrowing, and that suggests the market may be expecting some positive development for U.S. farmers on the trade front. "Narrowing US-Brazil soybean price differentials imply greater market optimism on the potential for a Trump-Xi trade deal or at least a de-escalation of US-Sino trade tensions in advance of the G20. This positive sentiment stands somewhat in contrast to other asset markets, including equities," the Citi strategists wrote. Even with the 25 percent tariff on U.S. soy beans, the average soy price differentials have shifted from a 24 percent U.S. Gulf Coast discount to Paranagua in mid-October, to a 17 percent discount last week and 13-15 percent discount this week. The strategists said the differential could partly account for any movement of U.S. beans to South America for local crushing or even re-export. "We think it is mostly a reflection of the physical trade becoming more optimistic about a 'surprise' breakthrough for US-China trade relations. Indeed, Brazil premiums to CBOT futures have also collapsed, from over 250 cents to below 200 cents over this period while soybean prices in Brazil for delivery into China have also fallen in both US$ and BRL terms," they wrote.

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Pretty sure the soybean is grown. But, China is buying Brazilian Soybeans,  Europe appreciate the cheaper US prices; but, is a much smaller market.

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China already has new suppliers and with tariffs war will be hard to provide good results and survival for many small US farmers.

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The administration says it will give soybean farmers $3.6 billion to make up for the shortfall. That is less than half of the total loss due to tariffs.

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8 minutes ago, rainman said:

China already has new suppliers and with tariffs war will be hard to provide good results and survival for many small US farmers.

Even after it ends the farmers will have lost their markets. It will take a lot of time for them to rebuild them.

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“I’ve been to China 25 times in the last decade talking about the dependability of U.S. soybeans,” said Kirk Leeds, the chief executive of the Iowa Soybean Association. By undermining that reputation, he said, “we have done long-term damage to the industry.”

I don't see a good sign for US farmers. For now....

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My advice to US farmer producers- you better have 100% of your unsold soybeans protected with a put option strategy. More downside potential margin loss than upside potential gain. 

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8 hours ago, 50 shades of black said:

The administration says it will give soybean farmers $3.6 billion to make up for the shortfall. That is less than half of the total loss due to tariffs.

Do you have a reference for that?

Here are the largest importers. China is way out front.

https://www.statista.com/statistics/612422/soybeans-import-volume-worldwide-by-country/

 

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The United States is in a stronger position than China. We have other sources for everything we need. We need to diversify our imports from many other countries. Being overly dependent on Chinese goods weakens us. I would rather make whatever we can in the United States. If that doesn't make sense for some labor intensive products we can import them from Mexico, all of Latin America, Taiwan, South Korea, Japan, or anywhere in the world. China is expanding their Global reach and we should do the same with our trade. 

Let our business tycoons deal worldwide and not just focus on China. It is not in the national self interest or our moral leadership to strengthen a communist dictatorship. 

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Interesting point on the US-Brazil soybean spread. Pavel's quote from Kirk Leeds is right on the money. In January 1973, President Nixon imposed a soybean embargo on Japan. The embargo lasted only three days before Nixon was convinced that it was a bad idea but the damage was already done. As far as Japan was concerned, the US was an unreliable supplier and Japan needed to diversify its sources. In 1973, Brazil did not grow any soybeans. The Brazilian soybean industry was started by Japanese trading companies with the encouragement of the Japanese government. It grew from nothing to the giant industry it is today because of the three-day soybean embargo in 1973.

Things are different today, of course. The US is willing to sell beans to China but must compete with other producers like Brazil that are not directly involved in the US-China trade war. Still, the lesson of 1973 is, one bad decision, even if it is rescinded quickly, can have long-term consequences.

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