Impact of COVID-19 on Agriculture

A Tale of Two Commodities: Soybeans and Steel

Market Intel / July 24, 2018

For several months now, the U.S. has been abuzz about all things steel and aluminum. At the end of May, the White House released a press statement that “The Section 232 steel and aluminum tariffs have already had major, positive effects on steel and aluminum workers and jobs and will continue to do so long into the future.” The effect of the 25 percent tariff on steel has continued to build since they were enacted in the spring, contributing to higher prices for U.S. steel.

But for every action, science tells us there is a reaction. The reaction has come in the form of retaliatory tariffs from our trading partners. Chief among those partners is China, which has been impacted by both the 232 tariffs as well as the tariffs that resulted from the U.S. 301 investigation related to intellectual property theft. As has been well reported, China has targeted U.S. agricultural products in its retaliation efforts. To date, approximately 90 percent of U.S. agricultural exports to China face some sort of additional tariff.

The tariffs on U.S. imports of steel and aluminum and the additional tariffs applied on U.S. agricultural products by our partners are both having the intended effect. Since the beginning of April, U.S. HRB steel futures prices have risen 11 percent. U.S. soybean FOB prices have fallen 18 percent over the same time period. Meanwhile, U.S. soybean growers' loss are Brazilian and Argentinian soybean growers gain. Brazilian and Argentinian soybean FOB prices have gained significant premium over U.S. soybeans since Chinese tariffs on U.S. soybeans went into effect. At close of business July 20, the premium was $55 per MT for Brazilian soybeans and $52 per MT for Argentinian soybeans.

Contact:
Veronica Nigh
Senior Economist
(202) 406-3622
veronican@fb.org
 

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Today we face a different sort of inflation (September’s consumer price index was up 5.4% from last year), with specific disruptions cascading throughout the economy, leading to general shortages and price increases. This is similar in many ways to inflation during wartime, when governments take dramatic economy-distorting steps to deal with the crisis, the shape of demand changes suddenly, and certain production and trade flows are interrupted.

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Credit: Arkansas Farm Bureau, used with permission.  

Released on Sept. 30, USDA’s Quarterly Grain Stocks Report showed that as of Sept. 1 old-crop corn and soybean inventory levels had dropped, compelling USDA to update supply and demand expectations in the October World Agricultural Supply and Demand Estimates, released on Oct. 12. Much higher-than-expected soybean stocks and the subsequent adjustments made for old and new crop supply and demand pushed soybean prices for the 2020/21 marketing year average and the 2021/22 marketing year down sharply.

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