Impact on US grain markets and investment minimal despite tariff ceasefire with China

Markets rose in anticipation of a deal between the two countries, but by limiting the agreement to additional tariffs for 90 days means the effect has been minimal and is likely to remain so, say industry insiders.

The impact on US grain markets of the 90-day amnesty on new tariffs agreed by the US and China is expected to be minimal, Rabobank’s head of agri commodity markets research has told Agri Investor.

US soybean futures have risen slightly from $8.70 per bushel to $9.10 to per bushel after US President Donald Trump and Chinese leader Xi Jinping agreed the moratorium at the G20 summit in Buenos Aires, said Stefan Vogel head of agri commodity markets research and global sector strategist – grains and oilseeds at Rabobank.

Trump also said China had agreed to buy a substantial amount of goods, including agricultural. However, prices remain below the highs of 2017 when they stood at well above $10 per bushel.

Although the overall impact is expected to be minimal, the deal fits both countries nicely. Supplies are tight in China, while there has been record production in the US this year, Vogel said. It could mean the US exports a few million tonnes to China, supporting the American market before the Brazilian harvest, “which is looking fantastic,” delivers in late February, he added.

The overall impact on the US grain market is nevertheless expected to be minimal also because the situation remains uncertain. It’s unsure for example how much volume will flow and at what price. Clarity is vital here. UK grain economists are also unconvinced China is committed to importing substantially more agricultural goods.

Sentiment to invest in US agriculture remains low after China imposed a 25 percent tariff on US imports, Vogel added. Tariffs have led to a sharp fall in US soybeans being shipped to the country, which led to a drop in US prices. The longer it goes on, the more soybeans from the Brazilian harvest will be available. For prices to rise above $9, there needs to be a comprehensive deal and we are far from that, Vogel warned.

Rabobank estimates that a deal to lift the 25 percent import tariff applied to US soybeans would have seen soymeal potentially rise above $350 a ton and help eliminate the country’s 2018-19 surplus. Soymeal’s eventful 2018 – which included drought in Argentina, a trade war and record US soybean production – saw CBOT prices closed unchanged near $310 a ton, added Rabobank.

Meanwhile, EU rapeseed prices remain positive since every country outside the US benefits from the trade war, Vogel said. Drought in the EU and Australia have also contributed to this by reducing supply, he added.