As a staple of livestock feed and cooking oil, soybeans are a critical component of diets in some of the world's largest countries. Many market participants appear to rely on Soybean futures and options to manage the risk of price fluctuations, particularly as uncertainty increases.
The Sino-U.S. trade war has had a large effect on the Soybean futures market as well. China has long been the largest market for U.S. soybean exports. As rhetoric regarding tariffs became increasingly threatening on both sides beginning in April 2018, the resulting market uncertainty drove futures volumes to record levels. Even after tit-for-tat tariffs were implemented and the trade tension escalated, April 4, 2018 remains the highest volume day for the CME Group Soybean future since the beginning of the dispute.
In December 2018, the Chinese and American governments agreed to a pause in any additional tariffs while they negotiated a trade deal. The original U.S.-set deadline of March 1, 2019 was delayed, and while a deal appears imminent, some uncertainty remains. Throughout the negotiations and tariffs, robust liquidity during recent trade war- related news suggests that CME Group's Soybean futures markets will remain a central trading hub
2 A.M. Volume Spike
Retaliatory Chinese tariffs were reported several hours ahead of Chicago trading hours on April 4, 2018. Asian and European traders were able to position themselves using Soybean futures, with a volume spike at 2 a.m. Chicago time. Round-the-clock liquidity in the market allowed traders around the world to promptly take positions in response to the news that both sides in the dispute were digging in their heels.
Hourly Price and Volume April 4, 2018
Bid Ask Spread in the Morning Hours
In the wake of the tariffs from the Chinese government, spreads for Asian traders widened slightly off from the minimum one tick. This is understandable given the rapid change in the price of futures as participants absorbed the news. However, spreads rapidly returned to near the minimum of one tick, as seen in the CME Liquidity Tool. After hitting a moderate increase of 1.23 during Singapore trading hours, spreads quickly reverted to near their minimums, hitting 1.07 in time for Chicago trading hours. This demonstrates not only the relatively small impact on Soybean futures bid/ask spread in the immediate aftermath of the announcement, even as volumes were spiking, but also the speed of the market's recovery to near minimum bid/ask spread during the same session.
Soybean Bid Ask Spread 7am - 4pm CT
What It Means
The Sino-U.S. trade war caused price uncertainty for the 2018 soybean crop, especially on April 4, when the Chinese government announced its first retaliatory tariffs. Even as the market was moving substantial volumes, CME Group's markets remained liquid in all time zones, as observed in the bid ask-spread throughout the session. With more news on the trade war expected into the spring of 2019, around-the-clock liquidity will be critical to traders in every region as they position themselves to respond to the results of the ongoing negotiations. April 4 provides a picture of the kind of global soybean trading we might see as news breaks.
Learn More about trader tools and resources for soybean futures.
(This article is sponsored and produced by CME Group, which is solely responsible for its content.)