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China Unlikely to Retaliate on Soybeans?

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China Unlikely to Retaliate on Soybeans?

Bob Utterback

Lots more hand wringing is going on this week about the possibility that China will retaliate against the U.S. trade tariffs by cutting soybean purchases. But, so far, there is no indication from Beijing that is going to happen, and some analysts say it will not. The American Soybean Association sent a letter to the White House this week warning of the consequences that would occur if China cuts purchases of U.S. soybeans in response to demand by the U.S. to reduce the trade deficit. However, noted market analyst Bob Utterback does not see that happening, “China has a tough choice to make whether they want to continue to dump their excess steel into the U.S. or cut off imports of soybeans. They need the soybeans a lot more than they need to dump the steel to feed their growing livestock sector.” Thus, Utterback does not expect retaliation against soybeans. The USDA estimates there are 700 million pigs in China who are fed primarily with U.S. soybeans.

Mike Silver

Mike Silver, with Kokomo Grain, agrees saying the Chinese need U.S. grain too badly, “It would not surprise me to see the Chinese talk it up; but, in the end, I don’t think it is anything for us to worry about.” Silver sees this as a bargaining chip by the Trump White House to force China to address the massive trade surplus they have with the U.S.

Overall, Utterback feels the U.S. livestock sector is more at risk of retaliation, “China would be more likely to retaliate against processed and packaged products like pork and beef. We are already seeing weakness in the pork market anticipating a decline in demand.” He supports the Trump approach on trade and feels it will be good for American agriculture in the long run, “We are going to have some bumps along the way; but, in the long run, it will be positive.” He urges producers to be ready for volatility and protect themselves against big market swings, “Sell the summer highs, and buy the harvest lows.”

Several other analysts HAT talked with this week concur and do not see this as a major market factor at this time. Yet, the news media continues to predict a world-ending calamity for U.S. farmers. “Fears ripple through the U.S. heartland that agriculture could take hit from China trade retaliation,” said CNBC. On Thursday, soybean futures prices rallied as reports of lower South American production surfaced.