At midnight today, the United States started implementing tariffs for major Chinese goods coming to the country. This is an important move after months of countless negotiations and urging from business and political leaders who advised against the tariffs. Shortly afterwards, Chinese authorities announced that they were starting imposing tariffs on US goods which include products like crude oil, natural gas, corn, and soybeans. Chinese tariffs on American goods is intended to make it difficult for Trump’s supporters as they go to the midterms.
The price of soybeans has fallen to the lowest point in more than one year as shown in the chart below.
Soybeans are important components for the Chinese economy. They are so important that every year, China imports almost all of the soybeans produced in the United States. As the seasons turn, China increases the imports of soybeans from Brazil.
Some have argued that China will replace soybeans imports from Mexico. However, the reality is that its more difficult than that. For example, as I have mentioned before, the two countries have different seasons which makes it difficult for them to do that. In addition, Brazil does not have the capacity to produce all the soybeans imported by China.
As shown below, the price of Soybeans has an RSI of 28, which means that it is in oversold territory. The price is also lower than the short and medium-term moving averages. All this, coupled with the fact that China will find it difficult to substitute the US soybeans means that the price may improve.