On Thursday, USDA drastically changed the demand outlook for soybeans in their July World Agriculture Stocks and Demand Estimates (WASDE) report, citing Chinese tariffs which are no stranger to the market.
For several months soybeans and the farmers who grow them have been at the tip of the trade war spear and have felt the pain of tariffs. That was once again the case on Thursday when USDA reduced new crop soybean exports by 11%.
“Because we've had an ongoing trade dispute with China, the USDA shaved 11% off of its projection for new crop soybean exports,” says Jo Vaclavik of Standard Grain. “And this is mainly due to the idea that China will not buy nearly as many new crop beans from the U.S. because of tariffs.”
According to Vaclavik, not all traders and analysts agree with USDA’s numbers because it’s difficult to say where China will source all of the soybeans they need if they aren’t buying from the U.S.
“It's very difficult to imagine where China is going to get beans come this fall when Brazil runs out of exportable supplies,” he says. “But nevertheless, USDA is reducing its demand projection for soybeans drastically today and this is all despite the fact that export sales and commitments have been very, very strong and are actually running ahead of where they were a year ago, yet the projection for new crop demand is now below where it was a year ago.”
According to Vaclavik, if we resolve the tariffs and tensions there, things could change quickly.
“We could come to an agreement with China or this could drag out for years, its really up in the air right now, but USDA is going with the idea again that soybean demand on the export front will be reduced drastically,” he says.
Not only did USDA reduce projected demand for new crop soybeans, but they projected U.S. ending stocks to be higher, says Brian Grete editor of Pro Farmer, adding that soybeans were one of the only commodities in which USDA addresses the tariffs.
As you might expect, soybean markets came under fire at the release of the report, but Grete says they recovered.
“The soybean market absorbed it and while it faced a little bit of pressure after the report was released, [the market] finished a little bit higher on Thursday,” he says.