Soybean giant Brazil swoops on US crop as China trade war punctures prices
Non-Chinese buyers cash on American supplies to feed demand in their own countries, analysts say
Who’s winning the US-China trade war? When it comes to soybeans, the answer is Brazil. The South American nation is capitalising on the strife caused by US President Donald Trump’s trade war to profit from both China and America in soybean trade.
China has been the biggest buyer of US soybean in recent years, but as imports have become caught up in Beijing and Washington’s tit-for-tat tariffs, Chinese purchasers are now looking to to Brazil to make up the shortfall.
As a result, US soybean prices have fallen by 20 per cent since April to their lowest price in nearly a decade, while the Brazilian crop is being sold at a premium, according to industry watchers.
At the same time, Brazil and Argentina, another major soybean grower, have snapped up some of the cheap US supplies for their domestic markets, according to Grant Kimberley from the Iowa Soybean Association.
“There have been purchases from Brazil and Argentina to back fill their own domestic industries,” he said.
It’s not just Brazil that’s buying the surplus American soybeans, however; US sellers have also reported unusually high sales in non-traditional markets across Europe, the Middle East and Southeast Asia.
“In the end, the beans are going to move someplace, it’s just question of at what price,” he said. “It’s like a big game of musical chairs, but it’s not something you would draw up in an economics class as a model of efficiency, that’s for sure.”
China, which imports 60 per cent of the soybeans traded worldwide, bought 32.9 million tonnes from the US last year, accounting for 34 per cent of total purchases.
That total is forecast to drop by 6.8 million tonnes for the 2018/19 crop year, according to the US Department of Agriculture.
In contrast, Brazil’s exports to China were on the rise, increasing to 8.2 million tonnes in June from 6.6 million tonnes at the same time last year, said Arlan Suderman, chief commodities economist for New York-based commodity trading and risk management services provider INTL FCStone.
Suderman said Brazilian soybean was about 20 per cent more expensive than the US product and Chinese processors would have to decide whether to pass the extra cost on to consumers.
“They will have to either absorb the increased cost, pass them along to the livestock producers utilising the soy meal and food companies utilising the soy oil, be subsidised by the government, or some combination. In the end, the Chinese crush and livestock industries are paying a steep price,” he said.
US farmers are also worried about the upcoming harvest. Chinese buyers have accounted for just 17 per cent of all advanced purchases of the autumn US soybean crop, down from an average of 60 per cent over the past decade, according to Reuters.
“With each day, we’re that much closer to the combines rolling, and the longer this goes, the more anxiety will intensify,” Iowa Soybean Association spokesman Aaron Putze said.
“Although the clock is ticking, the prevailing sense among farmers is that this is going to get worked out. But [the administration of US President Donald Trump] is a different kind of administration, that is not conventional, and so people are biding their time.”
US soybean exporters say while they did not expect a resolution in the near future, both US sellers and their Chinese buyers were eager to get back to business.
“Our Chinese partners have told us they are hopeful that this gets resolved in a reasonable period of time, and that they want to resume normal trading, but their hands are tied too,” Kimberley said.
“This is a government-to-government, and a political issue, that is out of everyone’s hands.”
Additional reporting by Eric Ng