Last year an unknown price competition was going on between oil leaders. By increasing production, and thereby lowering the market price for oil, they tried to compete each other out. On November 2016, members of the Organization of the Petroleum Exporting Countries (OPEC) and ten other countries, among them Russia, decreased part of their production. This month the same leaders decided to extend this policy for nine months. The goal is to increase the price of oil, but MarketWatch came up with an interesting thread by looking at history.
Till the 1970s the US was the major producer of soybeans. This changed after the US blocked the export of soybeans several times . In the short run, this resulted in price drops which harmed farmers. However, also in the long run there was damage in the US soybean industry. The US Department of Agriculture reported that after the export blocks, Japan started to invest more heavily in Brazil’s soybean industry, which was at the time just a small player. Lost confidence in America as a soybean supplier was their key argument. In 1971, America produced 1,127 billion bushel while Brazil produced only 76 billion. In 2016, this was 3,926 billion bushel for America and for Brazil 3,546 billion. So, both industries grew, but America lost market share to Brazil.
MarketWatch compared market developments in the soybean industry with the current situation of the oil industry. OPEC limits production together with 10 other countries. The US is not included in this. MarketWatch noticed that America improved its technology and efficiency and thereby might have the ability to respond quickly to production drops by OPEC, while gaining market share.
The question is if the US really has the ability to fill the gap that OPEC creates, and if it really is hard for OPEC to regain market share after losing some to the US, as was the case in the soybean production. History shows that it can be hard to regain market share in commodity markets, so OPEC should pay attention to this possible threat.