Soybeans is one of the most important American exports. The crop, which is mostly used in the manufacture of edible oils is mostly exported to China and the European Union. 60% of all US soybeans are exported to China. As such, its price continued to decline this week after the United States implemented fresh tariffs on China. This was the biggest drop since August last year and the price sits near the 10-year low. In response, China said that it would retaliate against the US. If it does, it will likely increase the tariffs already in place on soybeans.
In the ongoing trade negotiations, one of the Chinese promise is that it would increase the purchases of US crops like soybeans. While this would be a good thing, it also exposes US farmers to the challenge, if the country had to halt the purchases.
Another major theme in the soybeans market is the current infestation of armyworm in China. This is an insect that eats top crops like corn and soy and was detected in China five months ago. According to the US Department of Agriculture (USDA), this worm could have major implications on the country’s supply of the crop. This would lead to the need for more imports to fill the gap. This would mean more demand for US soybeans at a time when Chinese authorities are trying to increase local production so that they can reduce over-reliance on American and Brazilian exports. Every year, the country produces 16 million tons of the crop but imports more than 80 million tons. The new armyworm infestation comes at a time when China is battling the pork crisis. According to Rabobank, more than 200 million animals could be affected by the African swine fever.
As shown in the chart below, the price of soybeans has been on a downward trajectory, The price is trading near a ten-year low of $8.12. On the chart below, the price is slightly below the 50-day and 25-day moving averages while the RSI has dropped to about 40. The price will likely continue to drop as the trade war escalates.