China’s decision to put tariffs on U.S. soybeans as part of trade tension between the two countries has proved hugely bearish for the world’s oilseeds market, although the likelihood that Europe’s rapeseed crop will be much smaller this year has shown to be supportive.

The USDA’s Economic Research Service headed its Oil Crops Outlook report, published July 16, with the headline: “Soybean Prices Plunge to a 9-Year Low.”

“Soybean prices collapsed in June under the combined pressure of favorable U.S. growing conditions, an increase in sown acreage, large old-crop stocks, and China’s tariff hike on imports from the United States,” the ERS report said. “On June 1, cash soybean prices for central Illinois were $9.86 per bushel ($362.29/tonne) but by early July had plummeted to just above $8 ($293.95). Not since December 2008 have prices for the crop been that low. Provided the crop develops without major difficulties, post-harvest prices this fall are liable to be even lower.”

Domestic crush margins in 2017-18 are exceptionally strong and will remain so well into 2018-19, the ERS said.

“Currently leading the charge for domestic processors is a higher demand for soybean products,” the ERS said. “With a decline in Argentine output this year, U.S. soybean meal exports are helping to fill the gap.”

On soybean oil, the agency pointed out that demand in the United States is getting a boost from competitive prices and supportive policy decisions, explaining that the Environmental Protection Agency proposed on June 26 to increase renewable fuels blending, something that would mean more demand for biodiesel. Noting China’s decision to respond to U.S. trade action by implementing a 25% tariff on soybeans and other products from July 6, the ERS said that China’s importers could still bring in U.S. soybeans as they usually do.

“Typically, at this time of year, U.S. sales to China experience a sharp seasonal decline as the country increasingly relies on competing suppliers and the stocks already accumulated,” the ERS said. “For 2016-17, only 9% of U.S. exports to China were shipped in the April-August period. By the end of summer, though, U.S. export sales to China for 2018-19 may start to lag.”

Brazilian exporters will replace U.S. supplies to China.

“This role will last as long as the cost to import from Brazil does not rise substantially above U.S. origins (including the higher tariff),” the ERS said. “If the impasse over trade is not resolved, the long-term stakes for the U.S. soybean market are considerable.”

China accounted for 62% of U.S. soybean exports in 2016-17. The ERS also pointed out that U.S. supplies might replace Brazilian soybeans diverted to China in some markets.

The July 12 USDA World Agricultural Supply and Demand Estimates report proved bearish with a sharp rise in forecast U.S. soybean ending stocks. The USDA now sees 2018-19 soy ending stocks at 580 million bushels (15.79 million tonnes), compared to 385 million (10.48 million tonnes) forecast a month earlier and 465 million (12.66 million tonnes) the year before.

The U.K.’s Agricultural and Horticultural Development Board noted in a report on July 16 that “Chicago soybeans continued to decline last week as a bearish WASDE release and continued trade tensions weighed on prices,” noting that the Paris MATIF market also fell, but was supported by concerns over European rapeseed production.

The AHDB also highlighted new estimates from the Association of German Farm Cooperatives (DRV), cutting its estimate for winter rapeseed production to 3.55 million tonnes, 500,000 less than forecast in June and a 16.8% decline when compared with the previous year. The DRV noted on its website that the forecast was even worse than had been expected and represented the lowest crop in the last 10 years. The British sector body also cited a French government forecast putting the rapeseed crop there at 4.6 million tonnes, down 300,000 from an estimate made in June and down 15% on the previous year’s crop, a decline attributed to the affects of frosts, the wet spring and increased flea beetle pressure.

The International Grains Council (IGC), in its July 2 Grain Market Report, said a combination of trade tension between the United States and China and mostly beneficial growing conditions led to sharp losses in export values for all origins for June.

“Nearby U.S. futures slumped by 17% month-on-month in response to an escalating trade dispute with China and its potential implications for import demand,” the IGC said. “Aside from a period of dryness and heavy rains in some areas, weather patterns were mostly favorable for U.S. crop prospects.”

On rapeseed, the IGC said Canadian canola futures were mostly shaped by movements in soybean markets, the nearby (July) position decreasing by 3% month on month.

“However, further declines were capped by continued uncertainty about production prospects across the Canadian Prairies and ideas of potential demand from China, while currency movements were influential at times,” the IGC said.