The trade war against China could come down to a small bean, the soybean.
In April Beijing placed a 25 percent tariff on American soybeans in retaliation for the Trump administration’s levies on Chinese-made goods.
Here’s the problem for China: China is the world’s largest soybean consumer – using more than 1/3 of all soybeans produced.
The bean is used in a meal fed to pigs, and pork has become a staple in the Chinese diet. China is the world’s largest consumer of pork.
“China loves its pork, and the pigs must be fed,” says John LaForge, head of real asset strategy at the Wells Fargo Investments Institute.
Yet China produces only about 12 percent of the 112 million metric tons of soy it consumes annually, Sterling and Wells Fargo data show. It imports the rest, mostly from the U.S. and Brazil, who together make 68 percent of the world’s soybeans. The U.S. leads, at 120.4 million metric tons, followed by Brazil at 108 million.
Brazil also can’t grow enough to meet Chinese demand. Brazilian farmers “are already maxing out their soybean and soymeal exports to China,” Loren Puette, director of Taiwan-based research firm ChinaAg said.
“There simply aren’t enough soybeans in the world to satisfy Chinese demand” if you take out US supplies, said Michael Magdovitz, a commodities analyst at investment bank Rabobank in London.
“Chinese soy buyers are doing what they can to avoid US soy — for now,” John LaForge, head of real asset strategy at Wells Fargo Investment Institute, said in a note to clients this month. “We question, however, how long this can go on.”
Some analysts predict Chinese importers will have to return to US soybeans, tariff and all, later in the year after they run out of supplies from elsewhere.
That could have repercussions for China’s economy. If the higher costs of importing beans from the United States are passed on to Chinese pig farmers and then to consumers, that could push up inflation and raise living costs.
It could cause a “cascade of price increases across the country’s meat and fish industries’ supply chains,” Puette said. Possibly forcing China’s hand in trade talks.
Some Chinese companies are already feeling the pinch. A major agricultural firm, Beijing Dabeinong Technology, last week blamed rising prices for soybeans and other raw materials for weak earnings.