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Friday 20 April 2018

Soybeans sow seeds of discontent in US and China's trade war

Young Farmers examine soya bean in trailer after harvest
Young Farmers examine soya bean in trailer after harvest

Anna Isaac

The soya bean market has become an unlikely flashpoint in the global trade wars.

Production of the commodity is being studied carefully for signs of whether trade tensions between the US and China are likely to escalate.

Economists are watching to see if China suddenly ramps up domestic production of soya beans. Such a move could be an indication that the country is planning to pursue a trade war with the US in earnest, experts believe.

The country’s imports of soya beans are currently greater than the entire exports of non-US producers. A decision to abandon US imports would leave a significant shortfall for Chinese consumption that would need to be filled by domestic producers.

Donald Trump, the US president, has 
announced $60bn (£43bn) of tariffs on Chinese goods and China retaliated with lesser, though equally targeted, tariffs on US imports.

The tariffs that have already been proposed would have a marginal impact on the US economy overall, economists believe, but some individual sectors would be hard hit. An escalation of the trade war could knock 0.5pc off global growth in 2019, according to consultancy Oxford Economics.

As a result of this risk to the global economy, there is heightened interest in areas of Chinese activity.

Mark ­Williams, economist for Oxford Economics, said some “recent events could be read as a shot across the bow of US farmers”.

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These include new quality standards for US soya bean imports, which were higher than those imposed on Argentina and Brazil. The share of China’s imported soya beans was “unusually low” in the first two months of 2018.

Subsidies for production have already shifted in favour of soya bean, away from corn, in the country.

This is because soya beans have a higher protein content than corn, 
an important factor in the feeding of pigs, the main use of the good that helps meet high levels of pork demand in China.

While setting up sufficient domestic production to replace US imports would take time, China could also seek to stockpile the good in the interim.

This rising commodities tension also comes as drought in Argentina – caused by the La Nina weather phenomenon – has driven up the price of soya bean meal. This form of animal feed, derived from soya beans, has seen its futures jump by 19pc in 2018.

Tracey Allen, agricultural commodities strategist at JP Morgan, said that 
it is unlikely the growing conditions will improve by the end of the season, suggesting that prices may climb ­further towards the $418-per-ton high of 2016.

Telegraph.co.uk

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