The rains and twists and turns in a bitter trade war between the United States and China have hurt prices. The United States and China, the world’s top soybean producer and importer respectively, have slapped import tariffs on hundreds of billions of dollars worth of each other’s products in their dispute. Tariffs made U.S. soybeans too expensive so Beijing stopped buying them, resulting in a glut that has hit soybean contracts in Chicago, the reference price for the global trade.
The uncertainty over prices and the delays to deals has also rattle the global trade as major buyers look to lock in supply but farmers are stalling deals till the conflict is over. President Trump said on Wednesday that a trade deal with Beijing was coming along nicely and have also given $12 billion aid to farmer in the US. Although this may look like a positive signal, but some “Farmers are saying ‘I don’t like the price and I don’t need the money now because I was able to make cash with wheat and corn. So I’ll wait’.”
It is obvious U.S.-China trade war determining Chicago reference prices, rather than supply and demand, which means prices are flying without instruments. Benchmark Chicago Board of Trade soybean futures are hovering around $9 per bushel throughout the week. The chart below depicts the price over the week.
Figure:
U.S officials will travel to Beijing next week for another round of negotiation. Currently, investors and farmers finds themselves in a position to make big decisions in terms of next year’s planting and hedging investment positions. But the question here is; "should farmers hedge now or wait till the end of Trade negotiation?"
Sources:
https://edition.cnn.com/2019/03/20/politics/soybean-farmers-trump-trade-war/index.html
https://www.reuters.com/article/us-argentina-soybeans-tradewar/as-bumper-harvest-nears-argentinas-soy-farmers-stall-deals-waiting-for-trade-wars-end-idUSKCN1R12MD
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