GUANGXI, China (DTN) -- While CME soybean prices are falling, domestic Chinese soybean meal prices are moving up incrementally because of the possible impact of fewer U.S. soybeans shipping in the coming months. The trade dispute could lead to a spike in soy meal prices in China if the tariffs and market tensions remain into the fall.
Chinese markets are showing signs of worrying about supplies even though China is building up soybean stocks and Brazilians will supply the country in the next several months.
"If the two countries cannot reach a deal before the U.S. new-crop harvest, the Chinese soybean meal price may increase dramatically," said Dong Ping Lu, purchasing manager for Yangxiang Stock Co. Ltd., a feed company in Guangxi province in southern China. "There is no other country in the world that can provide the demand of China; we need to buy U.S. soybeans anyway."
In the short term, though, the trade conflict between the U.S. and China continues to escalate.
President Donald Trump on Monday upped the ante of trade tariffs with China by asking the U.S. Trade Representative to identify another $200 billion in Chinese goods that could be subject to a 10% tariff hike.
Trump announced the decision in response to China, which detailed $50 billion in U.S. products subject to a 25% import tariff, including several major agricultural commodities such as soybeans, pork and other products, including non-agricultural goods. China had done so because Trump imposed 25% tariffs on as much as $50 billion in Chinese technology products last Friday.
Trump explained why the latest tariff announcement was needed. "China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology," Trump said in a statement released by the White House on Monday. "Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong."
Once the USTR identifies $200 billion in Chinese products to impose tariffs, the White House stated, "These tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with new tariffs it has recently announced."
If another retaliation is announced by China, Trump said he would impose tariffs on an additional $200 billion in goods. "The trade relationship must be more equitable," Trump said in the statement. "I have an excellent relationship with President Xi, and we will continue working together on many issues. But the United States will no longer be taken advantage of on trade by China and other countries in the world."
The CME soybean contract for July fell to below $9.00 per bushel on Monday after the U.S. and China announced their decision to put a tax on imported goods from each other. On the other side of the world, China soybean meal price increased RMB 200 per metric ton ($30.75 per short ton).
"The reaction in the market was less aggressive than what we have seen two months ago when the U.S. government released the possible tariff on China imported products," Lu said. "The soybean meal market was not very active, though many of the crushing plants increased soybean meal price by about RMB 200 per metric ton."
Though Chinese government reaction was quick, the market was not following that, partially because of the weekend and the Chinese Dragon Boat Festival holiday on Monday.
China's tariff announcement from the Customs Tariff Commission of the State Council said tariffs on 545 goods worth $34 billion, including agricultural products, automobiles and aquatic products, will take effect on July 6, while tariffs on other 114 goods, including chemical products, medical equipment and energy products, will be announced later.
CME soybean futures are hitting a one-year low, even lower than $9 per bushel for a short period of time. Still, the Chinese Dalian Commodity Exchange (DCE) responded differently. The DCE July soybean meal contract closed 0.21% lower at 2817 RMB per metric ton ($433.22 per short ton), while DCE December contract closed 0.40% higher at 3043 RMB per metric ton ($467.98 per short ton).
"We may see soy meal price moving higher on Tuesday when the DCE gets back to work after the festival," said Lu. "But it may not change a lot, as the current soybean meal demand is not strong in the country."
After the announcement by the Chinese government two months ago of a possible tariff increase on soybeans imported from the U.S., feed companies are cautious about their purchases of soybean meal. Most of the companies kept an inventory of 20-30 days, and then are buying hand to mouth.
"We are not really worried about the front month," said Lu. "China bought a big volume of Brazilian beans, and most of them will arrive before October. Soybean inventory in crushing plants is also high. We will at least have good supply recently. Some feed companies are actually expecting a positive impact of the tariff. Higher soy meal could also stimulate the hog price, as a possible shortage of supply (could) help the hog industry survive current negative profits."
China's livestock market has not been in good shape since mid-February, the Chinese New Year. Pork prices are lower across the country and hog producers are losing money, leading to lower inventory. "Many of the hog producers are forced out of the market already," said Lu.
Editor's Note: DTN Ag Policy Editor Chris Clayton contributed to this article.
Chris Clayton can be reached at Chris.Clayton@dtn.com
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