© Reuters. FILE PHOTO: Imported soybeans are transported at a port in NantongBy Naveen Thukral and Hallie Gu
SINGAPORE/BEIJING (Reuters) – China’s soybean processors are snapping up Brazilian cargoes for shipment in the fourth quarter, curbing purchases of U.S. crops for delivery in North America’s peak marketing season as the trade war between Washington and Beijing intensifies.
That shift away from U.S. beans by China, which takes more than 60 percent of the commodity traded worldwide, will pile further pressure on benchmark Chicago Board of Trade prices
China in July imposed a retaliatory 25-percent import duty on U.S. soybeans as part of the tit-for-tat trade dispute between the world’s top two economies, conflict that gathered steam this week with the introduction of fresh tariffs on other products.
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“Chinese buyers are snatching soybeans from Brazil’s domestic oilseed market,” said a Singapore-based trader at an international trading company that runs oilseed processing plants in China.
“They are willing to pay a higher prices for Brazilian beans than what domestic crushers are paying,” he added, declining to be identified as he was not authorized to speak with media.
(For a graphic on ‘China’s soybean imports from United States vs. Brazil’ click https://tmsnrt.rs/2N39aIu)
Brazil’s soybean export season typically ends in August-September after which cargoes from the United States take over the market until March. The South American nation is the world’s top exporter, while the United States is No. 2.
But Chinese importers have this year booked around 12 to 14 million tonnes of Brazilian beans for October-November arrival, according to the trader and an analyst in China. That comes as increases in storage capacity and improved logistics have allowed Brazil to extend its selling season.
Soybeans are crushed to make cooking oil and soymeal, a protein-rich animal feed ingredient.
(For a graphic on ‘China’s fourth quarter soybean imports from Brazil, U.S.’ click https://tmsnrt.rs/2MZbv7j)
The landed cost of U.S. beans in China is currently similar to Brazilian soybeans even with the 25-percent tariff, but Chinese crushers are reluctant to take U.S. supply as they fear authorities may not approve cargoes.
“The government’s signal on this is clear – do not buy U.S. beans,” said a senior analyst with a major futures brokerage in China.
“Basically, all shipments for the fourth quarter are from Brazil even though prices of Brazilian beans are very high.”
Premiums for Brazilian beans have shot to a record $2.50 a bushel over the November CBOT contract
Brazil churned out 119.5 million tonnes of soybeans in 2017/18 and exported 76.7 million tonnes, according to the U.S. Department of Agriculture.
(For a graphic on ‘Spread between U.S., Brazil soybean export prices widens’ click https://tmsnrt.rs/2psFJpO)
CHANGING TRADE FLOWS
Over the near term, strong Chinese demand could force Brazilian domestic crushers to export their expensive local beans to China and import cheaper supplies from the United States, trade sources said.
Argentine crushers have been following a similar strategy, and recently booked 3-4 cargoes of U.S. soybeans while shipping their own local supplies off to Chinese buyers, according to traders at a recent oilseed conference in China.
“Brazil and Argentina will import soybeans from the United States as they are selling more to China,” said Ole Houe, director of advisory services at brokerage IKON Commodities in Sydney.
China’s purchases from the United States for the beginning of the 2018-19 crop year that began on Sept. 1 are currently a fraction of the long-term average, just as U.S. farmers start harvesting a new record crop estimated by the USDA at over 127 million tonnes.
(For a graphic on ‘China soybean imports set for rare contraction amid trade war with U.S.’ click https://tmsnrt.rs/2N0WqC4)
And the trade war could have long-term ramifications as China looks to cut total full-year soybean purchases for the first time in 15 years, seeking alternatives to soymeal in animal feed.
The country this month cut its forecast for 2018/19 soybean imports to around 84 million tonnes, down from about 93 million tonnes a year earlier.
China’s soybean imports had climbed uninterrupted since 2003/04 as the nation’s rapidly-expanding middle class develops a taste for meats, often produced from livestock given soymeal-based feed.
(For a graphic on ‘U.S. soybean sales to China sharply below 10-year average’ click https://tmsnrt.rs/2xEH7dw)
Source: Investing.com
