Dealing another blow to President Trump who has been building pressure to increase imports of U.S. agricultural products, China is entering a deal to allow the import of soy meal livestock feed from Argentina. The country’s officials will be signing the deal in Buenos Aires. The decision has been largely cheered by Argentine officials as it will open the world’s largest market for soybean to it after two decades of negotiation. In this regard, Argentine President Mauricio Macri commented that, “our country is the top exporter of soybean meal and now one of the largest markets in the world has been opened” (read: Trade War Gets Uglier: Here Are the ETF Winners & Losers).
Details on the Deal
Gustavo Idigoras, president of Argentina’s CIARA-CEC chamber of grains exporting companies, said that the deal needs to go through some crushing plant authorizations and then registrations of meal in China’s customs register. These might take a few months after which shipments will be allowed.
The meal produced in the crushing plants, located in the banks of Argentina’s Parana River, will be exported to China for the first time. However, Argentina was already exporting the meal to Southeast Asia, Europe and Northern Africa.
It All Boils Down to Trade War?
The escalating trade tensions between United States and China with no signs of respite in sight might have been the major reason for China’s decision to buy soy meal by risking its own crushing industry. In fact, Argentina and Brazil had already been seeing a rise in exports of raw soybean to China since the latter had imposed 25% tariffs on U.S. soybean imports. It is worth noting here that the United States had exported around $12.2 billion in soy beans to China in 2017 which reduced to $3.1 billion in 2018 (read: 4 Dividend ETFs to Ride Out Trade War Uncertainty).
Also, responding to President Trump’s early August attack, China has imposed additional tariffs ranging between 5% and 10% on $75 billion worth of goods from the United States, effective on some items from Sep 1 and others from Dec 15. The increased duties will be levied on nearly 5,078 U.S. products, including agricultural goods like soybeans and coffee along with whiskey, seafood, aircraft and crude oil. The American Farm Bureau Federation has commented on the move saying it "signals more trouble for American agriculture."
What to Expect?
Soybean could be China’s most important bargaining tool in the ongoing trade war. Its soybean imports have hit the highest mark in nearly one-and-a-half years in August. However, the outbreak of African swine fever has weakened demand to some extent. Meanwhile, Trump has been trying to revitalize the agricultural sector, which has been massively hit by his America first propaganda. It is worth noting that the U.S. farm lobby holds major influence in Washington and with the 2020 Presidential elections in sight, Trump is trying to come up with a solution.
The Teucrium Soybean ETF (SOYB - Free Report) in Focus
The fund provides investors unleveraged direct exposure to soybeans without the need for a futures account. The fund has AUM of $27.4 million with an expense ratio of 1.15%. The fund has lost 7% in the year-to-date period (read: Markets & ETFs Digest Trade Spat: Is It a Dead-Cat-Bounce?).
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