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China strikes back!


Chinese authorities retaliated to the US government’s publication of a list of Chinese goods worth $50 billion which will be subject to import duties by making a “black list” consisting of 106 goods, such as agricultural products (namely, soybeans, soybean meal, maize, wheat, sorghum), airplanes, cars and chemical products. This turn of events shocked the market, as China was not expected to take so drastic steps. Market participant believed that China’s threats to roll out tariffs against certain US-origin goods would remain nothing but threats. The agricultural market reacted with lightning speed – the futures of basic grains slumped, especially the futures of soybeans, since China consumed about 60% of the world’s total production of soybeans. The decrease in soybean futures reached the unthinkable 50 cents per bushel (that is about $18 per tonne). Afterwards, the quotes stabilized somewhat.

The date of imposing tariffs by China will totally depend on whether the US introduces import duties on Chinese goods or not. If parties do not join in the negotiations to resolve the conflict, the tension will play into hands of South American farmers and traders, as South America is the only alternative grain supplier for now. It is already quite a long time when Brazilian soybeans face booming demand even in spite of significant boost of premiums. Demand for Argentine soybeans is expected to grow either. Whereas the export volumes of Argentine soybeans will hardly catch up with Brazilian grain, the price is going to be pretty handsome. It should be noted that neither Brazilian nor Argentine soybeans are offered for oversea sales at the moment, as traders are hesitant to voice their offers amid present high volatility of grain market.

In case the duties are imposed, the USA will have to search for new markets to sell its grain, and it will most likely succeed, since, besides China, a lot of countries are actively buying soybeans. Meanwhile, Chinese consumers will have to find a way to replace US soybeans somehow, as last year, for example, almost 33 million tonnes of US-origin soybeans were supplied to China, accounting for a third of the total volume of Chinese imports.

Besides soybeans, the restriction will hurt imports of other goods included into the list, among which are maize and sorghum. The lack of maize will be overcome through larger purchases from Ukraine, China’s major supplier of this crop. Sorghum, that was mostly imported from the USA, will be substituted by barley. It is to be reminded that for the time being, just a few countries, namely Ukraine, France, Australia, Canada and Denmark, are allowed to supply barley to China.

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