Soybeans and Tariffs: Hold Your Breath – U.S. and China are Talking – DTN

Soybeans. ©Debra L Ferguson Stock Photography

With a long list of proposed tariffs by the U.S. and China hanging over markets, a team of U.S. officials will travel to Beijing this week to meet with their Chinese counterparts on Thursday. On Sunday, the Wall Street Journal reported visiting U.S. officials will include Treasury Secretary Steven Mnuchin, National Economic Council Director Larry Kudlow, U.S. Trade Representative Robert Lighthizer, and White House adviser Peter Navarro. (See here)

While no one can say how this week’s talks will go, a U.S. team this close to President Donald Trump is expected to make a serious negotiation effort, and China appears open to finding a resolution, at least in public. On April 10, the Washington Post described a speech by China’s President Xi Jinping as favoring lower tariffs on autos and greater protection for intellectual property.

It is the latter issue, protection for foreign firms’ intellectual property rights, which started the back-and-forth volleys of proposed higher tariffs that markets are facing today — including a proposed 25% tariff on U.S. soybeans. This week’s talks and the future of soybean prices largely depend on how China responds on this issue and what kind of safeguards China will be willing to offer foreign firms.

From the soybean markets’ point of view, prices don’t show obvious concern, but the July contract did give up an early 11-cent gain on Monday, before finishing the day down 7 3/4 cents at $10.48 1/2. As far as noncommercial traders are concerned, Friday’s CFTC data showed 80% of positions long, still holding close to the largest net long position since July 2016.

Soybeans’ most bullish market clues are currently found in new-crop months, where futures spreads are showing inverses that keep expanding in both soybeans and meal. The willingness of a market to pay higher prices for the earlier new-crop month indicates a strong desire among commercials to own soybeans sooner, rather than later — not a situation we would expect to see when the world’s largest soybean buyer is threatening to penalize U.S. soybean purchases.

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In my March 27 column, “For Soybeans, Timing is Everything,” (here) China can afford to put up a tough front this summer with Brazil’s record harvest to count on for supplies, but Brazil’s soybeans typically run low sometime in the fall.

The four-month period from October-to-January is when China generally has the most need for U.S. soybeans. China’s proposed 25% tariff on soybeans — designed to put pressure on President Trump’s voter base — could possibly turn out to be as painful for Chinese interests as it would be for U.S. producers. For that reason, there is some hope to believe China may be willing to negotiate the soybean tariff.

On Monday, Nov soybeans closed at $10.44 3/4, within striking distance of this year’s contract high. Dec soybean meal continues to show the most bullish market clues among grains and closed at $384.70 on Monday, its highest Dec closing price since July 2016.

This week’s meeting in Beijing will get a lot of press attention and a surprise is always possible. In spite of all that U.S. soybean prices have riding on the outcome, new-crop soybean prices are holding firmly bullish with no twitch in the poker face that I can detect.

Todd Hultman can be reached at Todd.Hultman@dtn.com

Follow Todd Hultman on Twitter @ToddHultman1

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