On March 1, when President Donald Trump said he had decided to enact tariffs on steel and aluminum, followed by $50 billion of tariffs on Chinese products on March 22, China responded with their own list of tariffs the next day, which included U.S. pork. The president added another $50 billion of tariffs on Chinese products on April 3, prompting China to respond the next day with another tariff list, this time including a 25% levy on soybeans imported from the U.S.
On the day of the announcement, July soybeans traded down over 50 cents at one point, closing down 22 3/4 cents as traders took some comfort in the notion that China's soybean tariffs were just proposed, not yet enacted. On April 5, President Trump threatened another $100 billion of tariffs against China, and it seemed that there was no end to this ongoing back and forth slap fest. Meanwhile, U.S. soybean shipments at the time were down 12% in 2017-18 from the previous year as Brazil's record harvest allowed China to largely avoid buying U.S. soybeans in early 2018.
Argentina's drought in early 2018 gave soybean prices an unexpected boost, sending the July contract above $10.80 in early March. However, as the exchange of dueling tariffs dominated the news in March and April, the bullish mood in soybeans chilled traders' enthusiasm. Noncommercial net longs peaked at 224,357 on April 17 and have been slowly declining ever since.
As I assessed market factors through April and May, the conclusion kept coming up bearish, but I had to admit more than once that it was impressive how soybean futures were holding within their sideways trading ranges. Brazil's record soybean harvest offset some of Argentina's bullishness, and it seemed likely that U.S. soybean plantings would be close to another record high in the spring. Were traders hanging on because they thought the dispute with China was temporary and soybeans would somehow be spared from China's tariff?
A meeting of U.S. and Chinese delegates in early May offered cautious hope to soybean bulls, but when the meeting ended without any significant agreement, soybean prices fell to their lowest close in two months the following Monday.
On May 21, bulls got a new ray of hope after a weekend of trade talks led the U.S. and China to agree to suspend proposed tariffs while negotiations continued. The goodwill did not last long, however, as President Trump announced another $50 billion of tariffs against China on May 29.
It is difficult to say what kept speculators on the long side of soybeans through the month of May. Maybe they were trapped in a roller coaster of trade news, hoping for a resolution, or maybe they just weren't paying attention.
Whatever the reason, speculators are now in a bind, holding 126,949 net longs as of June 5 as early crop conditions are off to a good start and July futures prices have now dropped to their lowest close in 10 months. The trade dispute with China will likely keep injecting drama into the market, but solid bullish arguments are difficult to find. An adverse change of weather may be this market's only hope, but so far, that is not in view.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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