Soybeans - Tariff Response
Two types of market responses:
Emotional – Market has a large spec soy long. Response is negative – easy to say today.
- First: China does not trade corn or wheat – direct impact is none. Only impact to grains is indirectly from soybean values.
- Think of this as an additional freight charge.
- Freight differentials are absorbed in basis not futures.
Old Crop US soy impact:
- US has shipped 25 MMT of 36 MMT we expected to sell to China.
- Balance (11 MMT) can be filled by Brazil and other SA suppliers. Not Argentina this year.
- Brazil has 20 MMT of exports to Non-Chinese destinations that can be shifted to China.
- US will move 11 MMT more soybeans to Non-Chinese destinations.
No Impact to old crop.
New Crop Theory – if tariff still in place:
- Brazil shifts 15 MMT to China – taking their sales from 50 to 65 MMT to China.
- China has to buy 20 MMT from the US.
- 20 MMT is 6% of total crop. .25 * .06 = 1.5% increase in cost of total world soy crop.
- 20 MMT is 16.6% of US crop. .25 * 16.6 = 4.2% impact on US soy – if we absorb the total cost.
- 20 MMT is 20 % of Chinese imports. .25 * .2 = 5% impact on Chinese soy - if they absorb the total cost.
My guess: Split the cost:
- The cost of soy to China goes up 1.5% (33% of the cost).
- The basis in US new crop drops about 3% (-30c/bu) (67% of the cost).
- World demand for soy does not change.