CBOT soybeans mark one-year anniversary of China's tariff threat -Braun

FORT COLLINS: One year ago, the US soybean market realized its worst fear: China announced plans to put tariffs on the US oilseed along with a handful of other imports in response to the US-imposed duties on Chinese goods.

While market participants knew that the April 4, 2018 announcement was possible, it hardly seemed feasible given China's historic reliance on US soybeans. Why would China make it more difficult to obtain a necessary product, one for which there are very few alternatives?

All is apparently fair in a trade war though, and China imposed the 25-percent duty on US soybeans on July 6. The market response was harsh as most-active CBOT soybean futures fell more than $2 per bushel (20 percent) from late May to mid-July, with the bulk of the plunge occurring in early June. (https://tmsnrt.rs/2WPuHdb)

But now, one year after China's shocking move, trade talks between the two sides drag on, even though an end has appeared to be in sight several times already. As a result, it could be argued that CBOT soybeans are currently struggling to find a direction.

Top trade negotiators from both sides met in Washington to continue the talks on Thursday, finishing with a meeting between President Donald Trump and China's Vice Premier Liu He. Trump said that it should be known in four weeks whether a deal is likely, familiar words to market watchers.

Trump had said back on March 14 that it would probably be known in the next three or four weeks whether a trade deal can be reached. Starting in December, the market had been expecting a deal by March 1, which came and went with no fanfare.

The trade negotiations, anticipation of upcoming meetings and announcements, tweets from Trump, and other related items have largely governed moves in CBOT soybean futures for a year now. Ever since most-active soybean futures reached a 10-year low of $8.12-1/4 per bushel last September, the trade uncertainties have probably been more supportive than damaging.

On Thursday, soybeans were nearly $1 off that low, closing at $9.06-1/2 per bushel. That price is nearly identical with the same date in 2016, but otherwise it is the lowest April price for the most-active contract since 2007.

As a reminder, the US Department of Agriculture predicts 2018-19 US soybean ending stocks at 900 million bushels with a stocks-to-use ratio of 22 percent. USDA's March 2016 estimate for 2015-16 ending stocks was 460 million bushels with a ratio of 12 percent, though both final numbers were less than half those amounts.

Soybean futures have generally trended lower over the past couple months, but the range has been tight compared with other years. Since Jan. 1, the most-active contract has traded in a 48-cent range, much smaller than the roughly $1.40 ranges observed during the same period in the previous two years. (https://tmsnrt.rs/2WNrqeo)

Hedge funds hold a relatively large net short position in CBOT soybean futures and options, which is generally more bullish for prices rather than bearish. But with large global soybean supplies coupled with the ongoing uncertainties over US-China trade, market watchers have had a tough time deciding what the next move with soybeans should be.

Unfortunately, it might not be clear for a while, so long as the trade negotiations continue to hold the market hostage. US soybean plantings are set to fall 5 percent on the year, but any weather disruptions to corn plantings, which are being eyed, could shift more acres over to soybeans. Healthy South American harvests have also recently kept the lid on soybean prices.

But ironically, even if trade is resolved, Chinese demand has become uncertain given the country's battle with deadly African swine fever that has been spreading through its hog herds since last August. This adds another layer of difficulty in trying to predict how the US soybean market might recover should China lift the tariffs.

Nonetheless, Trump said on Thursday that China will be buying a lot of product from the United States, a claim that traders are extremely familiar with, given that agricultural products are likely included. But this information will probably continue to prove useless without details, which have been absent to this point.