Mr Soybean is a proxy in the US-China trade war
Beijing, Sept 19: Two of the world's biggest economies are in the middle of a serious trade war and one of the biggest casualties of this war is soybean. The strikes and counter-strikes between the US and China over their trade have seen the prices of soybeans plunging to near 10-year lows and both the producers and importers have faced a steep challenge because of this, according to a piece in China's Global Times.
In the piece penned by Nelson Low, executive director of Commodity Products, Asia Pacific, CME Group, soybeans constitute a "perfect proxy" for the ongoing trade dispute between the US - the largest producer of soybean and China, the largest consumer.
"Although the end products of soybeans are as diverse as tofu, biofuels and industrial lubricants, their prime commercial use is as soybean meal, which represents two-thirds of their economic value. Soybean meal accounts for 60 percent of world meal production, and it is used mainly as animal feed, the majority of which ends up in China. Another third of soybeans' economic value comes from soybean oil, which is considered to be the second most important vegetable oil," Low wrote.
The US is still the largest soybean producer though Brazil threatens to overtake it the current fiscal, growing 120.5 million tons compared to the former's 117.3 million tons. The report said, adding the US yet remains a key player in the global soybean trade.
China, on the other hand, is the largest importer, buying over 60 per cent of the global export in 2016-17. This over concentration of the global soybean market makes it a crucial component in the US-China trade war.
The rising demand of soybean over the years because of growing consumption has been mainly driven by China. Other Asian countries have also contributed, thanks to economic growth, rising population and growing meat diet.
According to Low: ".Rising demand is just one factor that contributes to price volatility. Other factors include the high concentration of soybean production in only a few producing countries, weather and the unpredictability of what farmers will choose to sow each year at the start of the planting season. Given these variables, the USDA's (US Department of Agriculture) World Agricultural Supply and Demand Estimates report typically has a big impact on prices when it is published."
The ongoing political tension between Washington and Beijing has raised the soybean price volatility. China had warned that it would impose a 25 per cent tariff on soybean imports from the US in April 2018 in response to the US's imposition of tariffs on Chinese goods, which would put soybean prices on a downslide.
China went ahead with the tariff on July 6 soon after the US put 25 per cent tariffs on Chinese imports worth $34 billion and it led to further fall in the prices. The tariff hit the export patterns with China raising the imports from other countries like Brazil. American soybean producers, meanwhile, have to explore fresh market opportunities.