Week 11 - An update on the US v China trade war

Trade war update

As many of you know, and as previously mentioned in a past post, China and the US are in the middle of a trade war which has affected the demand of US soybeans dramatically. It has led to an increase in demand for soybeans from Brazil, but this could all be coming to an end. According to Reuters, and the US Trade Representative Robert Lightizer, "....negotiations are entering their final weeks on a possible accord, that could see China remove a 25 percent tariff on U.S. soy that upended global farm trade and shifted demand toward Brazil." 


As this war between the countries progressed, China has had to rely on Brazil for the demand for soybeans to replace what they was importing from the U.S. In 2017/18, Brazil had a record-high production crop year that meant China did not have to rely to heavily on the United States. However, this year the output is expected to be lower and will Brazil would not be able to supply what is needed, and therefore, China will to be relying on the US again. Hence a need for the trade war (especially on soybeans) to be resolved. 


Price update over the past week

In week 11, the price for soybean futures May 2019 contract opened at 898.2 cents, and closed at the end of the first day of trading at 890. With the price being at its lowest since January, the news of the US v China trade potentially coming to end caused the price of soybeans to increase throughout the week, with a slight blip on the 14th March where price decreased from the previous day. At the close of trading on Friday, the price had a 1.20% increase from its previous day and closed at 909.2.

Soybean meal followed the same sort of trend and increased throughout the week. On the close of trading on Monday, the price was at 301.3 cents, down from the close on Friday by 0.79%. From then, the price increased throughout the week and closed on 310.8, an increase of 9.5 overall. In comparison, soybean oil continued its trend of backwardation with the previous week. At close on Monday, price was at 29.64 cents, and apart from an increase on Tuesday, the price in general continued to fall and on Friday, closed at 29.43 cents. 


As the season for growing soybeans is approaching, we may potentially see the 3 soybeans price begin to rise steadily. However, depending on the weather this year, growth could exceed last year or decrease which could pose for an interesting year.


Sources

https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_quotes_globex.html

https://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html

https://www.reuters.com/article/usa-trade-china-brazil/brazil-preparing-for-end-of-u-s-china-trade-war-mulls-response-officials-idUSL1N20Z24N