Soybean Futures and U.S.-China Trade
If you want to know at a glance how the U.S.-China trade war and tariff negotiations may be faring, one key indicator to look at is the price of soybean futures. Why? China remains the largest soybean importer in the world, by far. And the U.S. is not only the world’s largest producer of soybeans, but is also second only to Brazil as the biggest soybean exporter. Put all of this together, and you can see how important U.S.-China trade relations are to soybean prices.
U.S.-China Trade War Pressures Soybean Prices
The chart above shows key points and events along the soybean futures time/price line for the past year. A key point on the chart occurs on April 4, 2018. This is when the Chinese government announced that it would be imposing retaliatory tariffs on U.S. goods. This, in turn, occurred after President Trump threatened tariffs on Chinese goods. Trading volume surged to a new long-term high on that day as prices took a sharp dive. It wasn’t until May, however, that prices really began to plummet. This was shortly after a preliminary round of U.S-China trade talks failed to end the trade war.
Recent Fall in Soybean Futures Also Tied to U.S.-China Trade
More recently, soybean prices began to deteriorate once again after the March 1 deadline for a trade war ‘ceasefire’ came and went without a trade deal. And just over this past weekend, Trump threatened more tariffs on Chinese goods. This was despite recent assurances by the U.S. administration that trade talks were progressing well. As a result, the price of soybean futures gapped down to nearly an 8-month low on Monday before paring some of those losses.
What May Come Next for Soybean Futures?
Soybean futures have reached down to a major area of support, as shown on the chart. That support aligns closely with the double-bottom lows of July and September 2018.
By now, it has become apparent that Trump tends to use public communications (most notably, Twitter) as a negotiation tool. He uses veiled and blatant threats and posturing to get his point across in a very public way. When it comes down to it, though, Trump wants and needs a trade deal with China – just as the Chinese want one with the U.S.
The likelihood of a deal being struck in the very near future, therefore, is high. If this indeed becomes the case, soybean prices could soon make a strong rebound off support and begin to recover from heavily oversold territory.
IMPORTANT: The information above should not be construed as investment advice and should not be considered as a solicitation to buy or sell securities. Trading and investing in the financial markets involves substantial risk of loss, and may not be suitable for all investors.
Disclosure: At the time of this article’s publication, we have no position in any security or trade/investment mentioned, nor do we have any business relationship with any company whose stock may be mentioned.
Senior Market Analyst at The Technicals
A veteran global macro trader/analyst, Bart focuses on major market moves in currencies, commodities, fixed income, and global equity indexes. Bart stresses inter-market correlations and dynamics while keeping a close eye on risk. He has published countless market analysis pieces and has been a guest expert for a variety of major financial media. Contact Bart