The imposition of higher tariffs on US soybeans by importing countries could have a significant impact on the overall demand for this commodity.
This decrease in demand could result from increased costs for importers, leading them to seek alternative sources or reduce imports altogether.
Less competitive US soybeans
Higher tariffs also make US soybeans less competitive compared to those from countries with lower or no tariffs, potentially resulting in a loss of market share.
Last Friday, the Chinese government announced retaliatory tariffs of 34% on all imported goods from the United States.
This move comes in response to the recent escalation of trade tensions between the two countries, and the new tariffs are set to take effect this week.
The decision to impose these counter-tariffs is expected to have significant implications for businesses and consumers on both sides of the Pacific, potentially leading to higher prices, supply chain disruptions, and a further deterioration of the bilateral trade relationship.
China will impose additional tariffs of 10-15% on certain energy and agricultural commodities imported from the US.
This measure is a response to the tariffs the US introduced earlier in March.
Carsten Fritsch, commodity analyst at Commerzbank AG, said in a report:
It is therefore very likely that Chinese purchases of US agricultural products will be significantly lower,
This is especially relevant for soybeans.
China accounted for half of US soybean exports
The US Department of Agriculture reported that 52.4 million tons of soybeans, valued at $24.6 billion, were exported from the US last year.
China was responsible for approximately 50% of this.
China will mostly import soybeans from Brazil in the next few months due to seasonal reasons, so there won’t be many changes in the short term, Fritsch said.
Chinese soybean purchases in the US typically increase with the arrival of the new autumn harvest.
“This is unlikely to happen this year.” Fritsch said.
As in autumn 2018, China is likely to continue to source most of its soybean imports from Brazil next autumn, according to Commerzbank.
Fritsch noted:
Demand for US soybeans is therefore likely to be significantly lower, which should also have a negative impact on the price outlook.
The soybean price dropped below $10 per bushel on Friday.
Reduction in soybean acreage
The potential shift by China away from the US as a primary soybean supplier carries significant implications that extend beyond the immediate economic impact.
This move could instigate a ripple effect, influencing US farmers’ planting intentions for the upcoming seasons.
Faced with a reduced demand from a major importer, farmers may be compelled to reconsider their acreage allocation for soybeans, potentially opting for alternative crops that offer greater market stability or align with shifting global trade dynamics.
This adjustment in planting strategies could lead to a cascading impact on the agricultural landscape, affecting crop prices, land use patterns, and the overall structure of the US agricultural sector.
Moreover, the loss of a major export market could have broader economic ramifications, impacting rural communities, agricultural businesses, and the overall balance of trade for the US.
Corn acreage may increase
The USDA’s survey results, released last week, indicate that soybean acreage was expected to decrease by 4% from the previous year.
“The reduction could now be even greater,” Fritsch said.
The most important customer, Mexico, has been exempted from the reciprocal US tariffs, and China is a less important buyer. Therefore, instead of reducing, corn planting could be increased, according to Fritsch.
The area used for spring wheat planting may be expanded beyond initial projections.
As a result, prices for corn and wheat could also drop.
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