Far-ending trade war reinforces Brazil as reference in soybean price formation

Posted by Marina

The 20-month trade war between China and the United States is already underway has led to a profound shift in the global soybean market, although oilseed is not the main reason for the dispute between the world's two largest economies. According to experts, although the news carries information from a prior agreement, the much-talked-about 'phase one' of a full deal and headlines like these, the conflict is far, far from over.

A recent headline by the international news agency Bloomberg says "the case is just growing into an eternal economic war." The discussions have long since broken down tariff barriers to reach a harsh political space where each event will be effectively used for opponents to attack each other.

"The art of trade agreement is the art of knowing how to exploit your opponent's domestic policy," says the agency's analysis. And on both sides this exploitation happens very effectively.

According to information released by Agrinvest Commodities on Monday, November 18, Beijing has changed its strategy on signing phase one of the previous agreement with the US as it bumps into tariff withdrawals. As the Asian nation seeks to lift rates, US President Donald Trump does not accept the measure.

"So China should wait for a decision on Trump's impeachment or the 2020 elections," says Agrinvest. Two weeks ago, US and Chihuahua leaders decided to withdraw, however, the US president says the order is that tariffs on Chinese products should be withdrawn only in the final agreement. "At this point in Beijing, leaders are pessimistic about signing a deal, which could lead to a turnaround in negotiations and further pressure on prices for some of the major commodities like Chicago-traded soybeans and New York cotton. ", completes the consultancy.


Although slightly better, the pace of China's soybean purchases in the US still disappoint the market and, according to Shanghai Intelligence Co.'s oilseed analyst Monica Tu, heard by Bloomberg, the total US commodity sent to the Asian nation should account for only between 10% and 15% of what was announced in January.

"Buyers are very cautious," says Monica. Still, they turn to the American oilseed in the face of the lack of Brazilian product available to meet their needs. Last week alone, the Chinese bought about seven US soybean vessels for December and January shipments.

For some, China's soybean purchases in the US have served as a kind of thermometer for negotiations between the two countries. For others, it is only this lower availability of the product in Brazil, which harvested a smaller crop in the 2018/19 season and still reaches impressive export numbers, exceeding 70 million tons.

In the same week, confirming this intense movement of Chinese demand for Brazilian soybeans, the country bought 16 ships from the national oilseed, as reported by SIMConsult director Liones Severo. "The Chinese need American soy in the South American offseason," he says.

The changes, according to Severo, should be definitive when it comes to the global soy trade. "The fact is that the Atlantic agricultural trade axis has been transferred from the US to South America, which is the largest exporter of soybeans and corn. Just as we saw the center of consumption settle on the Pacific axis," he explains.

And it is for this and other reasons that the expert believes that the path that is being traced at this moment, therefore, is for Brazil to become a price reference. "The formation of the price will be from Brazil. It was time to use our protagonism," believes Severo.

The director of SIMConsult also believes that the formation of values ​​for soybeans via the Chicago Stock Exchange is a standard with expired validity, and also affirms that the effects of this dispute no longer weigh so heavily on the progress of the market. international market.

"The influences and impacts (of the trade war) are already over time and will not change anything in any case. It's over. The funds are leaving their positions because they can't pay their capital. The market in Chicago has been demonized and lost its importance, "he says. Still as Severus explains, this is a definitive process. "The money by money markets have been beaten. The world turns to the product and that's what we have. It's breakthrough time and it's already happening."


The riots in China-US relations date long before the start of Donald Trump's declared trade war in March 2018. Perhaps this is why there is already consensus among analysts, consultants, economists and political scientists that the end of this conflict is still over. far away.

"There is no forecast of ending this trade war. We have no news, we have some behind-the-scenes information about communication difficulties between them, quantities, prices, when things start to happen, the Chinese do not want to get too stuck, but the news are few, "says Tarso Veloso, director of ARC Mercosur, direct from Chicago.

And this track record that relations between the two countries have long carried has come to the fore since Trump began his presidential campaign, hardening rhetoric against the Chinese and using as a campaign promise differentiated treatment of the issue.


And while the problems in US agriculture have been aggravated by the onset of the trade war, Liones Severo points out that they date back long before the dispute began and therefore need to be studied further. "Producers' losses date back to 2014, and American corn has never had any expression for the Chinese market. Corn is the most depreciated US agricultural product," he explains.

The US cereal market has been recording prices below production costs for some time, and has seen its competitiveness reduced with Brazil and Argentina selling their products in local currency which inevitably depreciates the dollar value. "So much so that the most depressed prices of the last 4 years corresponded to the largest devaluations of the real", explains Liones Severo.

In 2019, US agricultural bankruptcies registered their highest rate since 2011, with growth of 24%. According to the American Farm Bureau Federation, in the face of this situation, US farmers are increasingly dependent on US government subsidy and income guarantee programs.

Already next week, according to the Allendale, Inc. consultancy portal, the USDA (US Department of Agriculture) is starting its second round of payments from the TRMP government promised subsidy for this year 2019. The operation is the second part of three out of a government-announced $ 16 billion aid package aimed at compensating farmers damaged by the trade war.

By Twitter, Trump said on Sunday: "Our big producers will receive another amount of" cash, "with China's tariff compliance, before Thanksgiving. Smaller producers and properties will benefit the most. , and as you may have already been told, China is starting to make big purchases again. Agreement with Japan DONE. Enjoy! "