Tomorrow, just after midnight, U.S. tariffs will be slapped on $34B worth of Chinese goods – in a move many are calling the opening salvo of a trade war between the world’s two largest economies.
Stories of transport ships like the Peak Pegasus racing to Chinese shores to beat out the new 25% soybean tariff have been shared on social media, and there doesn’t appear to be an end in sight for this trade dispute. For American export-bound goods, the consequences of retaliatory tariffs on the Chinese side will be difficult to manage; already, we have seen the price for vulnerable crops like soybeans drop more than 16% in the past month.
Just how bad it can be from a price perspective, however, is an open question: while technical movements have been the main source of declining grain prices, could a trade war truly result in a mass production correction?
Experts disagree about the impact a trade war will have on commodity prices; while this last month has been disheartening for bean farmers, a research note released by Goldman Sachs maintains a bullish outlook on the staple in spite of recent losses. The research arm of the bank is forecasting a 10% return on commodities over 12 months as the dollar drops due to trade war. On the brink of a trade war, soybeans are a “buy” for GS, stating in the report that beans have been oversold as they enter sub-840 price territory.
Goldman also states that the rerouting of all beans destined for export is not possible, either; what has been surprising in spite of China cancelling deliveries and rerouting soybeans to places like Bangladesh and Iran, however, is the fact that American bean sellers have been able to find buyers elsewhere in place of China. Although the Chinese have been the largest importer of American beans by far in the last several years, soybean exports are down only 7% from this time last year, according to a Foreign Agricultural Service report released 6/21.
Overall, the impact of a trade war on American commodities will certainly hurt their demand in China, but the impact it will have on global commodities markets remains open: “the trade war impact on commodity markets will be very small, with exception of soybeans, where complete rerouting of supplies is not possible,” added Goldman analysts in the July 4th note.
Trade war concerns will continue to have an impact on commodity prices, until a bilateral solution between Beijing and Washington can be reached; stay on top of trade news by following @packcreekcap on Twitter, and stay tuned for more updates on this ongoing situation.