Soybeans’ trade war fallout uncertain

Some analysts believe Canada would benefit if China targeted U.S. soybeans in brewing trade war; others not so sure

A brewing trade war between the United States and China could create turbulence for Canada’s soybean sector, says an industry executive.

U.S. President Donald Trump has directed the U.S. trade representative to apply tariffs on about US$50 billion of Chinese imports in response to what he claims is intellectual property theft by China.

China recently responded to Trump’s earlier tariffs on aluminum and steel with a $3 billion list of U.S. goods facing possible retaliation ranging from pork to steel pipe.

China had not yet responded to the new round of U.S. tariffs as of The Western Producer’s March 26 publication deadline, but many groups, including the American Soybean Association, worry that U.S. soybeans will be at the top of China’s next list.

Ron Davidson, executive director of Soy Canada, is unsure of what that would mean for the Canadian soybean industry other than temporary mayhem.

“A whole lot of dislocation is inevitable because we’ve got two big players here,” he said.

“We’ve got a big exporter and a big importer.”

The U.S. is the world’s second biggest soybean exporter behind Brazil, while China is by far and away the world’s biggest importer of the oilseed, accounting for about two-thirds of annual global trade in the crop.

China imported 38 million tonnes of U.S. soybeans last year, which was 61 percent of U.S. total exports that year and represented nearly one in every three rows of soybean production.

Some analysts believe a Chinese tariff on U.S. soybeans would be a boon for Canadian sales to that important market.

“That could push a little bit more demand towards Canada, which would be fabulous because right now if we don’t pick up our export pace, we could be sitting on a million tonnes of soybeans by the end of the year,” said Chuck Penner, analyst with LeftField Commodity Research.

That would be a burdensome supply for a crop that usually has 300,000 to 400,000 tonnes of carryout.

“Maybe it will allow the basis to snap back a little bit in Western Canada,” said Penner.

Davidson doesn’t believe it is that straightforward.

“I wouldn’t say this is automatically good for us,” he said.

If U.S. soybeans don’t go to China, they will end up in some of the other 70 markets Canada ships to and they could also head north into Canada.

So while Canadian farmers may see more export opportunity and better prices in China, they could have more competition and reduced prices in other key markets such as Japan and the European Union as well as at home.

He likens it to when Russia shut down imports of a variety of agricultural products from the European Union, the U.S. and Canada.

That caused the EU to move more pork into Japan, which had been Canada’s best market for the product.

Davidson said the markets will eventually settle down, as they did with the Russia ban, but for a while there will be turmoil and confusion.

He also said it is not a certainty that Canada will ship more beans to China if it slaps tariffs on U.S. product.

“Our companies probably wouldn’t want to be shorting their long-term customers to divert product into China,” he said.

China is already Canada’s largest customer. It accounted for about $1 billion of the $2.4 billion in Canadian soybean exports last year.

Davidson said the impact on canola will be more muted because soybeans are a meal-based crop while canola is oil-based.

However, Reuters is reporting that Chinese soybean buyers are already purchasing more canola meal in case soybeans are targeted for retaliatory tariffs.

About the author


Markets at a glance

Copyright © 2019. All market data is provided by Barchart Market Data Solutions. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.


Stories from our other publications