Source: Ukragroconsult (Ukraine)
The international soybean market is once again attracting attention due to newly imposed Chinese tariffs on soybeans and other agricultural products from the United States. As the largest global importer of soybeans, China has enacted duties on these products from the U.S., which stands as the second-largest exporter of soybeans. Seasoned traders recognize that government involvement in free markets often creates profit opportunities, and this situation is following that pattern.
The soybean export market is heavily dominated by a few countries. Specifically, Brazil, the United States, Paraguay, and Argentina collectively account for over 92% of unprocessed soybean exports. Among these, Brazil and the U.S. together represent more than 85% of global supply. Additionally, China is responsible for around 60% of all soybean imports, positioning it as a crucial market player. Even with the recent tariffs, China’s long-term dependency on U.S. soybeans is unavoidable because supply availability remains pivotal.
Currently, the market dynamics resemble those observed during the initial trade conflict between the U.S. and China in 2018-2019. During that period, Chinese buyers temporarily turned away from U.S. soybeans in favor of Brazilian soybeans, leading U.S. prices to plunge to production costs, approximately $9 per bushel. However, as Brazilian soybean inventories were depleted, China had to revert to U.S. sources, pushing prices up to $16 per bushel by 2021.
At present, U.S. soybean prices are stabilizing around $10 per bushel, which is about 10% higher than production costs. Simultaneously, Chinese importers are beginning to lean back toward Brazilian soybeans, which are cheaper. This shift could result in further price declines for U.S. soybeans, possibly bringing them down to production cost levels, thereby threatening the viability of U.S. farmers due to shrinking profit margins. Nonetheless, government support programs may assist farmers in navigating this challenging phase.
Eventually, Brazil will deplete its soybean reserves, compelling China to resume purchases from the United States. This transition is likely to stabilize prices at around $9 per bushel, followed by potential increases driven by natural market dynamics and rising Chinese demand. Historically, commodity prices typically encounter minimal downside risks when they reach production cost levels, and tariffs tend to expedite this phenomenon.
Thus, it’s reasonable to predict that U.S. soybean prices will hit the $9 per bushel threshold, but will likely commence a recovery once Brazil’s stocks diminish. This pattern has been observed multiple times in the past.