Soybean : US – China trade negotiations support prices higher

Soybean prices are up 9.3% over the prior month (from 9 September – 9 October 2019). One of the main reasons driving the price rally has been the optimism surrounding the US – China trade negotiations resuming from October 8, 2019…

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By Aneeka Gupta, Associate Director, Research, WisdomTree

China appears to be extending its soybean purchases. According to the US Department of Agriculture (USDA), additional purchases of 198,000 tons were made on October 7, for the current marketing year, setting a positive tone ahead of the trade talks.

“China relies heavily on soybean imports – nearly 84% of its soybean consumption was imported in 2018 (Source: World Trade Organisation).

The US and Brazil are the largest exporters of soybeans in the world. As a result of the US-Sino trade wars last year, Brazil’s share in China soybean imports rose from 53% in 2017 to 75% in 2018 while the share from the US dropped from 34% to 19%.

Therefore, higher exports from Brazil were able to offset most of the decline in exports from the US to China.

In the first 8 months of 2019, China’s soybean imports from Brazil declined 5% year on year (y/y) from a very high base, imports from the US were down 49%y/y, while imports from the rest of the world increased by 140% (from a very low base). On aggregate, soybean imports fell by about 9% since the start of 2019.

Lower demand in China owing to spread of African swine fever

“Despite the decline of soybean imports which reduced overall supply of soybeans and feedstocks in China, soybean prices have remained low.

One of the main reasons for this is China’s demand for feedstock has fallen over the past year owing to the African swine fever which has reduced its hog stock notably.

According to official data the hog stock in China has contracted by more than 30% in the 12 months to August 2019. Given that the eradication of the African swine fever is a long drawn out process, it is likely to take some time for hog stock to recover materially.

US soybean production estimates lowered

“In the latest October monthly report, USDA has lowered their projection of US soybean yields and production more than analysts’ forecasts.

Domestic soybean stockpiles were reduced marking the second biggest monthly reduction ever in the history of the World Agricultural Supply and Demand estimates (WASDE) report.

Inventories could fall further as an early snowstorm has the potential to suppress yields in parts of the US growing belt. Global soybean production is projected at 339.0mn tons, down 2.4mn to a 4-year low, mainly reflecting lower production for the US.

The outlook for tighter US soybean supplies helps slightly offset the weaker demand outlook in China owing to the African swine fever. However, the upward momentum in soybean prices hinges on fruitful trade negotiations between the US & China since it has been the primary driver of the recent rally.”

15-10-19 soia WisdomTree ETF

Source: Bloomberg, WisdomTree as of 9 October 2019. Please Note: soybean price is quoted in USD per bushel (USD/bu). Historical performance is not an indication of future performance and any Investments may go down in value.


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