$8 Soybeans Possible if China's Tariff Threat Becomes Reality

The trade dispute between the U.S. and China escalated overnight as China fired back with another round of retaliatory tariffs. China is proposing tariffs on 106 products that would equate to $50 billion with much of that could come at the cost of U.S. agricultural goods.

China is targeting a host of agricultural products from the U.S., including soybeans, sorghum, wheat, cotton, beef, cranberries, orange juice and tobacco.

However, it’s the 25 percent proposed tariff on U.S. soybeans that’s sending shockwaves through the markets, with soybean prices at the Chicago Mercantile Exchange (CME) dropping 50 cents overnight. If the threat becomes real, Purdue University agricultural economist Chris Hurt says $8 soybeans are a realistic possibility.

“I think we could be talking dollars lower in terms of prices,” said Hurt. “We have trade around $10 to $10.50 in terms of futures prices, so we’re probably talking about $8 dollar futures. That’s not a ridiculous statement.”

Hurt points out China still needs to buy U.S. soybeans, as it can’t source enough product from other countries. That was proof Wednesday morning, as U.S. Department of Agriculture (USDA) announced a 129,00 metric tons soybeans purchase by China for the 2018 to 2019 marketing year. USDA also reported a sale of 325,000 metric tons of soybeans to an “unknown destination,” however, Farm Journal economist Chip Flory says that sale is more than likely to China.

“We supply 30 percent of all their use of beans,” said Hurt. “They need us. They can't replace that in Brazil and Argentina in the short-run.”

China’s most recent action of targeting ag products in in addition to the 25 percent tariff already announced in U.S. pork.

“Let’s get a little perspective how important pork is in terms of dollars of sales to China, it was $1.1 billion 2017,” said Hurt. “Soybeans are $12.4 billion of sales. So, soybeans are in the range of 12 times more important to U.S. farmers in terms of sales to China.”

Hurt calls U.S. soybeans the “crown jewel of agricultural exports” to China. He says looking at the potential impact is huge if the tariff does become a reality.

“As we look at that that says that the impact on pork, we think the tariff probably will reduce prices maybe $3 to $6 a head on pork, but that's only 2 percent of our production in the United States,” said Hurt. “We're looking at more like probably 30 to 40 percent of our production going to China on soybeans. So that impact certainly could be large, but it will depend on the details.”

The details are something that still need to be worked out, but Hurt says his biggest fear is the U.S. would lose its place in line as a top supplier of soybeans to China.

“If we would become a residual supplier to China, meaning they would come to us last, and Brazil and Argentina, they would go there first-we don't want that in US agriculture.”