Sorry Soybeans Slump, Time to Seek a Bean Bounce

  • Approximately 50% of U.S. soybeans were shipped to China in 2016
  • Trumps tariffs led to a retaliatory 25% levy being slapped on the U.S. crop
  • The technical sentiment is as poor as it could be
  • There is renewed whispers of further trade talks, so maybe a contrarian trade is in order

In 2016 the leading export market for U.S. soybeans was The People’s Republic of China (China) with 35.9 Billion Tonnes of the agricultural crop heading in that direction.  The second largest destination for U.S soybeans was Mexico, accounting for just 10% of the China amount. (Source: Statistica)

World Agricultural Supply and Demand Estimates (WASDA) a unit within the U.S. Department of Agriculture (USDA) suggested in its July report that in an assessment of agricultural tariffs it was dramatically reducing its soybean exports forecast for the 2018-19 marketing year to the tune of 11%.

This dramatic deterioration in the forecast raised concern about the long-term trend in U.S. soybean exports. If the current forecasts prove to be correct, then the U.S. will face a second year of soybean export declines.

This reinforces the perspective that retaliatory tariffs have impacted soybean prices negatively. Even though it is acknowledged that were the U.S.-China trade disputes resolved, soybean prices could improve by 15%, the sentiment is overwhelmingly bearish.


Source:, Spotlight Ideas


Since mid-June the spot price has spent most of its time below a 20-day moving average and has clung to the lower Bollinger Band. The inset chart shows that the entire technical time field is populated by “Strong Sell” sentiment.

The importance of trade

The state of the soybean market underscores the importance of trade for U.S. agriculture. Between 20% to 25% of farm income is derived from overseas sales Or, depending on how you measure it, about one in every $4 or $5, of farm income comes from foreign sources. Therefore, when there is a dispute with the nation that takes over 50% of U.S. soybean exports, clearly that market will become dislocated.

Of course, the U.S. relationship with Canada and Mexico is far from healthy and if one adds their past demand for the U.S. soybean crop suddenly 58% of the exports are under pressure.

Exports to China had a value of $12 Billion in 2016, or put another way, the UDSA report that 25% of all acres devoted to the crop in the U.S. are raising crops that were destined for China. So as Beijing retaliated Trump’s tariffs by imposing a 25% levy on U.S. soybeans the market became highly distorted

The Chinese Agricultural Supply and Demand Estimates (CASDE) report said new tariffs on U.S. shipments introduced last week would inflate prices of the oilseed and open new trade opportunities for China to import the crop from Argentina, Brazil and Ukraine.

Potential for a reversal

Therefore, we are currently witnessing a significant decline in the forecast value of net cash income for U.S. soybean farmers. Clearly, if there is no shift in the trade outlook, the forecast will be realised as total net cash income will decline by 10%+ YoY.

It is, however, worth noting that here have been recent movements if not outright improvements on the North American Free Trade Agreement (NAFTA) negotiations and there was Wednesday last week an indication that that the U.S. is willing to re-open negotiations with China.

In such a scenario any improvements would edge the market sentiment away from the darkest despair that currently clouds the crop. There is, in fact, potentially room for a lot of upside gain, say 15% … if only the U.S. and China could break the impasse.

Factoring in production and transportation costs, U.S. and Brazilian prices are extremely close … once the tariff is striped out. Given the U.S. product is of a superior quality it could play out to favour America.

Soybeans 12-Months

Source:, Spotlight Ideas

It is easy to look at the price and technical charts and scream “SELL!” … however, has the bad news been built in? I think that it may be worth while to have a small speculative play on the crop price in a contrarian ploy, although with a tight stop loss in place.

Buy near the Friday close at US Cents 830.50/Bushell with targets at 876 and 936. The stop-loss is set at 810.

Read more macroeconomic analyses

Latest News

Yen stays strong in risk off scenario

Last Friday’s very weak German Manufacturing Purchasing Managers’ Index data was another blow to the global economic backdrop, with concerns throughout this year of a global slowdown in China, through Asia Pacific and increasingly also in Europe. This has seen riskier asset classes come under negative forces over the past week into latter March, with … Continued

Euro vulnerability

A Euro plunge in the latter part of last week, on Friday driven by very weak German Purchasing Managers’ Index data. Furthermore, the US Dollar has seen broader strength again on Thursday-Friday against many major currencies, after US$ weakness was seen immediately after a far more dovish Federal reserve at their meeting on Wednesday. This … Continued

EURUSD Still stumbles at the 200-day MA

The Euro was the weakest currency on Friday The EURUSD cannot break above to 200-Day Moving Average There may a small bounce on Monday morning As European slides into recession EURUSD will fall to 1.1000 The 200-day moving average (200 DMA) has continued to prove a stubborn barrier to the upward path of EURUSD. This … Continued

Current Market Analysis
Euro breaks down, GBPCAD threatens upside

US Dollar Index holds support and rebounds EURUSD seeds multiple negative signals, downside risks GBPUSD sends buy signal GBPCAD sets up more bullish AUDUSD negative and USDCAD buy signal USDTRY and USDBRL surge

Leave a Reply

Your e-mail address will not be published. Required fields are marked *

Forex Brokers in your location