This week starts with a positive message for soya bean markets as the White House indicates that China has agreed to start purchasing agricultural products from Unites States (US) farmers immediately. This follows what is termed a successful meeting between the US and Chinese presidents over the weekend (ending 2 December 2018), as the two countries work towards resolving their ongoing trade dispute.
While the US exports a wide range of agricultural products to China, such as cotton, sorghum, pork, tobacco and potatoes, amongst others, soya bean is the leading product in value terms. Hence, it was the agricultural product most affected by the retaliatory tariffs introduced by China a few months back. Over the past five years, the US exported on average about 48 million tons of soya bean per annum. About two-thirds of this was destined for China. The other notable markets for US soybeans are Mexico, Indonesia, Japan and the Netherlands. Within the Chinese soya bean market, the key US competitors are Brazil, Argentina and Uruguay.
In years with no trade friction, the US soya bean exports to China continued with minimal interruptions throughout the year, with significant volumes of over 15 million tons typically observed in the fourth quarter each year, followed by the first quarter with over 5 million tons. It is unclear if this trend will continue this year. While the weekend communication from the White House signals cooperation within the two nations, we are yet to see if there will be an increase in activity on the ground. Within the Chinese soya bean market, Brazil has emerged as a key supplier in the midst of ongoing US-China trade dispute, and it is likely to remain so, given the expected record harvest of 121 million tons in the 2018/2019 production season.
From a South African perspective, the above-mentioned developments will have minimal direct implications in the near term, albeit South Africa is a net importer of soybean oilcake. Over the past 10 years, about 98% of South Africa’s soya bean oilcake imports originated from one country – Argentina. If anything, the impact of the trade dispute could be through price transmissions in the near term, except if the US starts to push for market access in the South African soya bean oilcake market. This wouldn’t be a surprise as we recently saw a similar situation in the poultry sector. In such a scenario, local farmers’ incomes would be pressured, while users of the product would benefit. –Wandile Sihlobo
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his weekly update on agricultural commodity markets. Click here for the full report on agri markets for the major commodities.