China overlooks soybean tariffs, but specs pile in nevertheless

China’s government on Friday released a list of 128 US products it may target in its trade spat with the US, including a raft of agricultural products, but notable by its absence was soybean.

Farmers and the trade have been concerned about China targeting the oilseed since reports emerged in late January that it was launching an investigation into US subsidies for growing sorghum.

But a day after President Trump said he would tax $60 billion worth of goods, mainly high-tech products, China on Friday listed products as wide-ranging as pork, nuts, fruit and steel pipes with an import value of just $3 billion that it said would be subject to import levies.

The "will they, wont they" narrative may have been keeping a lid on a soybean futures rally that has seen prices surge 8% in a month on the Chicago Board of Trade.

“It seems pretty clear that we have a bunch of new spec shorts in the market counting on the Chinese putting retaliatory import duties on US soybeans and breaking prices,” said Charlie Sernatinger, a futures broker with ED&F Man.

Such a move would reverse the build-up of long positions that has seen managed money net longs hit a 20-month high.

It's a dynamic that doesn't make sense, say other observers, who claim it would be irrational for China to slap taxes on a product that would only hurt its own farming sector.

“If China were able to buy all of Brazil's soybean production… they would still need to buy over 20 million mt to reach their target of 100 million mt of soybean imports next year,” US futures brokerage Benson Quinn Commodities International said in a report Thursday.

Charlie Sernatinger agreed, saying "Chinese duties on US beans will likely have little to no effect on the US balance sheet", as even if China could source all its demand from outside the US, the impact would be to merely rewrite traditional trade routes.

“They can ramp up the percentage they buy in Brazil, but that will squeeze out other world buyers, and force them to come to the US, so net/net, the US won’t lose any biz, and the effect of Chinese tariffs will be to screw their own feeding industry with higher costs, even as the hog feeders have turned negative on margins,” Sernatinger said in a report Thursday.

Too early

However, other policy analysts have warned it remains too early to evaluate whether the latest statements of intent are a prompt to get both parties to renegotiate tariffs or whether they are part of a broader trade war.

That is particularly poignant given that China’s $3-billion tariff list was meant to be in response to US steel import taxes and not the much larger list of technology products.

“Soybeans would be a last resort. But there are still so many things we don’t know. We don’t know which Chinese exports will be subject to the tariff and until we know that we can’t analyse the impact on China and whether it could escalate into something bigger,” said Caroline Bain, chief commodities economist with Capital Economics.

“It may all fizzle out and be watered down. At the moment there are too many blanks to analyse it properly,” she said.

Nevertheless, it had spooked the market, with front month futures on CBOT sinking to a near six-week low in early trade Friday.