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Increasing tariffs?Increasing tariffs?

With China relying on South America agriculture, it means weather and politics there becomes more important in the market.

Kevin Van Trump

August 6, 2018

3 Min Read

Soybean bulls are hoping to find some renewed momentum to take out last weeks high of $9.22^2. We made the push on what was perceived to be improved trade talks with the Chinese. Those headlines were then "Trumped" by talks out of Washington that we could be raising the stakes by increasing tariffs form 10% to 25% on an additional $200 billion of Chinese imports.

From my perspective, the market seems comfortable hovering around the $9.00 level until more is known about Washington and U.S. weather. The USDA report coming out on Friday could also bring some additional insight and volatility. Bears want to argue that U.S. yields are moving higher, while the bulls argue that a decline in Chinese shipments have been more than offset by an increase in demand from other nations.

Regardless, it's nice to see the market has recovered substantially from the near 10-year low posted back in mid-July at $8.10^4 per bushel. The biggest question moving forward is how do trade relations with the worlds largest buyer of soybeans play out in the days and weeks ahead? Insiders seem to believe if things continue along their current path, the Chinese will try to string things along into the November mid-term elections, hoping to ultimately put voting pressure on the Republicans. If they make a concerted and orchestrated effort to avoid U.S. soybeans at all cost, I suspect the market could fall under additional pressure. Many bulls argue it will be next to impossible for the Chinese to avoid U.S. soybeans once we move past October.

More than likely the only way that happens would be a sizable reduction in overall Chinese demand, i.e. reducing livestock herd, finding large alternatives to meal, etc... It's hard for many of us to imagine that happening, but we are all very uncertain about how trade relations ultimately play out during the remainder of 2018. Like I've said all along, maybe this all ends in a crazy windfall for U.S. soybean producers? It's hard to see that in the current crystal ball, but I guess anything really is possible. As a producer, I'm holding steady with about 60% of our estimated new-crop production risk removed. I have "zero" of my estimated 2019 production priced.

The good news is, with China relying more heavily on South America, I suspect that makes upcoming South American weather and politics that much more important. Both could be extremely "wild-cards", we will need to be paying close attention to the headlines out of South America in the next few weeks. Remember, next month we should start seeing early corn and soybean planting in parts of central Brazil and Mato Grosso. The clock is starting to move more quickly, so make certain you paying close attention in case we happen to catch a substantial rally which opens up another window to reduce price risk.


About the Author(s)

Kevin Van Trump

Founder, Farmdirection.com

Kevin is a leading expert in Agricultural marketing and analysis, he also produces an award-winning and world-recognized daily industry Ag wire called "The Van Trump Report." With over 20 years of experience trading professionally at the CME, CBOT and KCBOT, Kevin is able to 'connect-the-dots' and simplify the complex moving parts associated with today's markets in a thought provoking yet easy to read format. With thousands of daily readers in over 40 countries, Kevin has become a sought after source for market direction, timing and macro views associated with the agricultural world. Kevin is a top featured guest on many farm radio programs and business news channels here in the United States. He also speaks internationally to hedge fund managers and industry leading agricultural executives about current market conditions and 'black swan' forecasting. Kevin is currently the acting Chairman of Farm Direction, an international organization assembled to bring the finest and most current agricultural thoughts and strategies directly to the world's top producers. The markets have dramatically changed and Kevin is trying to redefine how those in the agricultural world can better manage their risk and better understand the adversity that lies ahead. 

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