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This Commodity Is About To Explode Higher

This Commodity Is About To Explode Higher

This commodity has become the poster-child victim in the trade war between the U.S. and China, but its price may start heading much higher.

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The fate of a cargo ship went viral in China last month.

No, it wasn’t sinking.

On July 6, cargo ship Peak Pegasus became a bit player in the trade drama between the U.S. and China when it had to race against the clock to get to port to deliver U.S. soybeans to China before retaliatory tariffs kicked in there.

Peak Pegasus’ journey quickly went viral in China. “You are no ordinary soybean!” one user on the Chinese social media giant Weibo wrote as they cheered Peak Pegasus and its protein-rich cargo on.

But Peak Pegasus and its shipment of soybeans arrived just a half hour too late to the port of Dalian. It has been sailing in circles at 0.1 knots ever since.

Peak Pegasus is a 750-foot-long bulk carrier owned by JPMorgan Asset Management chartered by Amsterdam-based trading company Louis Dreyfus to transport 70,000 tons of soybeans—worth about $20 million—from the U.S. to China.

Louis Dreyfus is reportedly paying around $12,500 per day to keep the Pegasus circling in the Yellow Sea off the port in Dalian, China, in hopes that they can wait-out the trade war. And it may prove to be a smart move.

Offloading the soybeans in China now would incur a 25% tariff, which would add $6 million to the cost to deliver these soybeans. So far, circling the Pegasus has cost Louis Dreyfus around $400,000, and keeping the cargo ship at sea for months may prove to make more financial sense than delivering now and incurring the tariff charge, or diverting the ship elsewhere which could come at huge expense.

Soybeans have become a key battleground—and greatest casualty—in the ever-escalating trade tensions between the U.S. and China. China is the biggest importer of soybeans in the world and America’s largest customer, with trade totaling $14 billion last year.

In reaction to the Chinese tariff being imposed in early July, the price of a bushel of soybeans sank as much as 30% from highs reached in early March to $8.55 on July 11, the lowest level reached since 2008.

Since then, the price has surged 10% in the last month, and one trader expects the rally to continue.

Bill Baruch, president of Blue Line Futures, told CNBC that he is bullish on soybeans and that they are extremely undervalued at $9 as China won’t start making its largest purchases of soybeans from the U.S. until October, implying there’s still time for the trade war to be resolved before bigger shipments make their journey from the U.S. to China.

And earlier this week there was word that China may have to start buying U.S. soybeans even earlier this year despite the trade war as the other countries supplying it can’t supply enough soybeans to meet China’s demand.

Since it imposed its retaliatory tariffs last month, China has been importing its soybeans from elsewhere, particularly South America where supplies available for export are down.

Hamburg-based oilseeds analysts Oil World noted in a newsletter this week that China will have to resume purchases of U.S. soybeans sooner than later as a result of the South American supply shortage.

Oil World believes it will be necessary for China to import 15 million tons of U.S. soybeans between October and March of 2019, even if the trade war isn’t resolved, which would likely send prices climbing.

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