CHICAGO (Reuters) - U.S. soybean futures outpaced falls across most other markets on Friday as the trade war with China escalated and Beijing said it would impose tariffs on U.S. soybean imports, the single most valuable U.S. agricultural export product to its Asian rival.
U.S. President Donald Trump earlier announced tariffs on $50 billion of Chinese imports as he demanded better terms of trade from Beijing to close a $335 billion annual deficit.
The dispute is beginning to disrupt the flow of goods and services between the world’s largest economies. China also said it would tax oil and gas imports from the United States.
Soybean futures dropped 2.3 percent and hit their lowest price in a year as farmers prepared for disruption to the $12 billion worth of soybean shipments they send to China annually. Corn and wheat futures each fell less than 0.5 percent.
The steel industry, also susceptible to the trade dispute, lost ground, as the S&P 1500 Steel index .SPCCOMSTEEL fell 2.4 percent. In contrast, the S&P 500 was last down 0.1 percent and the U.S. dollar index was flat.
Soybeans were hit harder because China is by far the biggest buyer, said Chad Hart, an Iowa State University agricultural economist.
“We can’t find other markets through the world big enough to offset the loss of China,” he said.
China said tariffs on U.S. soybeans would take effect on July 6, a blow to U.S. farmers already struggling due to global grains oversupply. Farm incomes are a half of what they were in 2013, following massive harvests that have depressed crop prices.
Soybean futures responded quickly as traders factored in the impact of lower demand for U.S. soy from top global buyer China. The import levies will increase prices for U.S. soybeans in transit to China that arrive after July 6, potentially prompting buyers to cancel purchases.
This happened when Chinese importers canceled shipments of U.S. sorghum in April over new tariffs.
As of June 7, unshipped U.S. soybean sales totaled nearly 3 million tonnes, with about half slated for shipment before the fall harvest and half for after the harvest, according to U.S. Department of Agriculture data. More sales to China are likely contained within the roughly 7 million tonnes of yet-to-be-shipped soybeans reported to the USDA with undisclosed final destinations.
Worse would be if soy tariffs are in place when U.S. farmers harvest their next crop in the autumn, when U.S. grain shipments to China accelerate, farm economists said.
“The soybean market and this trade drama with China really makes me nervous,” said Kayla Burkhart, grain division manager for CHS SunPrairie, an agricultural cooperative in North Dakota.
Prices for the November soybean contract, which represent the crop that will be harvested in the fall, have dropped by more than $1 a bushel at the Chicago Board of Trade since the start of the month.
Prices for the most actively traded July contract hit a low of $9.03 a bushel on Friday, the lowest since June 23 last year. The contract ended down 21-3/4 cents at $9.05-1/2. A drop below $9.00 a bushel would take the contract to a more than 2.5 year low.
For months, U.S. commodity traders, equipment manufacturers and Midwest farmers had hoped this day would never come. And even as the White House announced some tariffs would begin next month, many in the farm sector were still hoping to avert a trade war.
“We are hopeful for a timely resolution that is beneficial to the global agriculture and manufacturing economy,” said U.S. tractor maker Deere & Co.
Deere shares were down 1 percent at $148.75.
China has the world’s largest livestock sector and is projected to buy 103 million tonnes of soy imports in the 2018/2019 marketing year, nearly two-thirds of the world’s soybean exports.
China’s tariffs could contribute to a 30 percent drop in farm income for Ohio corn and soybean farmers this year, said Ben Brown, manager of an Ohio State University farm program.
If the tariffs stay in place, net farm income in Ohio could drop as much as 63 percent in 2019, he said.
Seeking protection from such a decline, farmer Ron Heck is building a new grain bin on his land in Perry, Iowa. The 110,000-bushel bin will allow him to wait to sell his upcoming harvests if trade disputes hurt market prices.
“This could be ugly for a period of months,” Heck said.
Market volatility could be a benefit, though, to global grain merchants such as Archer Daniels Midland Co, Bunge Ltd and Cargill Inc [CARG.UL], said Seth Goldstein, equity analyst for Morningstar in Chicago.
Cargill warned in a statement on Friday that the U.S.-China trade dispute “will lead to serious consequences for economic growth and job creation.”
The U.S. agriculture sector is also facing the threat of tariffs on corn exports to top buyer Mexico, as Trump fights trade wars on several fronts.
Additional reporting by Rajesh Kumar Singh, P.J. Huffstutter, Karl Plume, Julie Ingwersen and Theopolis Waters in Chicago; Editing by Simon Webb and Tom Brown