China expected to cancel 1.1 million tonnes of soybeans from the US as new tariff bites

Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the United States in the year ending August 31 once the extra tariff on US imports takes effect on Friday.

China is the world’s top soybean buyer and has yet to take delivery of more than 1.1 million tonnes booked for the current marketing year, according to figures from the US Department of Agriculture, which said last week that China had resold about 123,000 tonnes of committed deliveries to Bangladesh and Iran.

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“These shipments will be either cancelled or resold if extra tariffs are imposed,” said Gao Yanbin, an investment manager with agriculture investment firm Shanghai Shenkai Investment Co. “The tariff rate is too high which will make crushers lose money.”

Some cargoes will get through because shipments destined for state reserves are free from tariffs, Gao said.

China holds unspecified volumes of state reserves of both domestic and imported soybeans. It had been forecast to buy 97 million tonnes of soybeans this marketing year.

Analysts do not expect many soy cargoes from the US to arrive after the Friday deadline as buyers have already stopped shipments. The Peak Pegasus bulk carrier will arrive before the deadline while the Aeolian Fortune and Kea have already arrived, according to Monica Tu, an analyst with Shanghai JC Intelligence Co.

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Chinese companies have agreed to increase purchases from Brazil since April and soy inventories at major crushers are currently at the highest in years, according to the China National Grain and Oils Information Centre. That is likely to change later in the year.

“There will be a supply deficit from the fourth quarter as crushers won’t have enough supplies if they don’t take US soybeans,” Gao said.

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Brazilian supplies fall to seasonal lows in the first and fourth quarters – a period when China’s imports are normally dominated by the US. The China information centre expects Chinese companies may need to import at least 10 million tonnes from the US when South American supplies run down.

“If China intends to keep their crushing plants operating in the fourth quarter and early first quarter they will need to import US soybeans even with a 25 per cent tariff,” as there are no other options to cover the shortage, said Paul Burke, North Asia regional director with the US Soybean Export Council. China imported about 25 million tonnes from the US in the fourth quarter of 2017 and the first quarter of this year, according to customs data.

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China would have the “world’s most expensive soybeans”, which may boost domestic prices of soybean meal and soybean oil, according to Jiang Boheng, an analyst with Luzheng Futures Co.

Premiums for Brazilian soybeans for August shipment were nearly 70 per cent higher than those for the US, according to the information centre.