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Soybean Rebounds 1% After Bearish USDA Crop Report, China Retaliation

August 13, 2019 at 18:08 by Andrew Moran

Soybean futures are rebounding on Tuesday following a bearish US government report regarding domestic output. Prices are trying to move on from China’s decision to halt US farm imports as part of retaliatory efforts after Washington slapped new tariffs on billions in Chinese goods. But Beijing might reverse course as the White House is considering an olive branch of good faith.

November soybean futures rose $0.0875, or 1.00%, to $8.88 per bushel at 17:41 GMT on Tuesday on the Chicago Board of Trade (CBoT). Soybean prices have been as volatile as the US-China trade war. Year-to-date, the agricultural commodity is down about 1%, but it has advanced 7% in the last three months, though it has tumbled 2% since the middle of July.

According to the US Department of Agriculture (USDA), production estimates are projected to be larger than initially anticipated as crops have benefited from a wet spring that was followed by dry weather. The USDA’s August report suggests that soybean output is expected to drop 19% from the same time a year ago to 3.68 billion bushels.

With demand falling sharply, this might be a good thing for prices over the next 12 months.

Recently, President Donald Trump slapped 10% tariffs on the remaining $300 billion in Chinese goods. China is reportedly retaliating by requesting state- and non-state-owned enterprises to temporarily pause purchases of US agricultural goods. Privately managed crushers that had previously been granted retaliatory-tariff waivers have also ceased acquiring American soybeans because of uncertainty over escalating tensions.

Moreover, the Ministry of Commerce is considering retroactively placing a levy on US agriculture transactions that were completed after August 3.

Over the last year, China has been gradually turning to South American producers for its soybean needs. But Reuters is reporting that Chinese buyers have been buying less from Brazil because domestic prices have surged from $380 last week to $400 per ton this week, including cost and freight. The market has ostensibly been taking advantage of the trade conflict.

Many media outlets have been speaking with farmers in the Midwest and the consensus appears to be that Trump is ruining their market, thanks to tariffs. Analysts will say, however, that when you depend on only one customer to survive then those are the risks you take. The administration has been trying to appease farmers by extending billions in bailout funds. It remains to be seen if they will still support the president by the time Election Day rolls around.

President Trump might be concerned about losing Middle America support because he announced on Tuesday that he is delaying the newly announced tariffs, concerned that they could hurt the Christmas shopping season. He told reporters:

We’re doing this for the Christmas season. Just in case some of the tariffs would have an impact on US customers. So far they’ve had virtually none. But just in case they might have an impact on people, what we’ve done is we’ve delayed it, so that they won’t be relevant to the Christmas shopping season.

In the first half of 2019, China’s imports of US soybeans fell to their lowest levels since 2004.

In other agriculture markets, September corn futures cratered $0.1650, or 4.2%, to $3.7625 per pound. September wheat futures were unchanged at $4.715 a bushel. September orange juice futures dipped 0.25 cents, or 0.25%, to 98.60 cents per pound.

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