Every crisis brings opportunities. This rings true with the current trade debates in the Unites States (US), which could negatively influence its trade activities with China and Mexico. In an agricultural perspective, China is a key player in soybean trade – constituting over 60% global soybean imports. The largest suppliers of soybeans to China are the Brazil, US, Argentina, Uruguay, and Canada.

For the US farmers, this is of particular importance because approximately 70% of their soybean exports goes to China and Mexico – where the meal supplies large animal feeding operations and the soybean oil supplements strong consumer demand for vegetable oil. The trade activity to both China and Mexico could be negatively affected if President Donald Trump follows through on his protectionist trade policies, as both these countries could potentially retaliate to such policies.

Under this scenario, the winners would be South America, as China would have to resort for soybean supplies from other origins. South America plays a key role in global soybean production. A recent report from the International Grains Council shows that Brazil and Argentina are set to produce almost half of global soybean output in 2016/17. Global soybean production for 2016/17 is estimated at 334.2 million tons (which is 6% higher than the previous season).

Brazil is set to constitute a third of the global crop, with production estimated at 102.5 million tons (which is 7% higher than the previous season). Moreover, Argentina is set to constitute roughly 16% of global soybean production (53 million tons, which is 10% lower than the previous season).

In the same season, US soybean production is estimated at 117.2 million tons, which is 10% higher than the previous season and also the largest crop within the past four seasons.

On the demand side, the United States Department of Agriculture (USDA) forecasts China’s 2016/17 soybean imports at 86 million tons, which is 3% higher than the previous season. The Chinese feed industry is expected to remain vibrant for the foreseeable future due to strong demand from the animal feed industry. This is, in turn, driven by higher demand for meat due to the growing population.

In addition, the USDA forecast Mexico’s 2016/17 soybean imports at 4.65 million tons, which is 5% higher than the previous season. Mexico’s soybean demand is also expected to remain strong over the foreseeable future.

The US agricultural sector stands a great risk of losing significant market share in the global soybean market if the country ends up implementing President Trump’s trade policies. For South African producers, this will have an indirect impact on commodity price fluctuations. Already, US soybean prices came under pressure over the past few days, owing to ongoing debates about the North American Free Trade Agreement (NAFTA), which involves Mexico.

Over the coming weeks, the trade discussions in the US and weather events in South America are likely to be the key drivers of global soybean prices. In the South African soybean market, the aforementioned factors, together with the currency movements (Rand to the US Dollar exchange) will likely be the key drivers of the soybean prices.

Although this paints a worrisome picture for US soybean farmers, it presents an opportunity for South American farmers to expand their market share in China and Mexico. After all, there is a silver lining in every dark cloud.

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Wandile Sihlobo
E-mail: wandile@agbiz.co.za
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