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Brazil-premium for soybeans could see Chinese buyers increasing shipments from the US

Brazil-premium for soybeans could see Chinese buyers increasing shipments from the US

Despite the unfolding trade war between the US and China, where China imposed a 25 percent import duty on US soybean imports in July, a domestic shortage of the beans which crushed to make cooking oil and the protein-rich animal feed ingredient soy-meal is now resulting in Chinese traders paying a higher price for Brazilian beans than what domestic crushers are paying, leading to speculation that China could again increase shipments from the US.


With a spread between Soybean prices trading in Chicago and those being sold by Brazil at close to $92 per tonne ($2.50 per bushel at 36.74 bushels per tonne), US soybeans are becoming competitive despite the tariffs.

China, which buys up to 60 percent of the roughly 161 million tons of global export cargoes, took in 33 million tons from the United States last year.


Soybeans from the US are mostly shipped from US Gulf ports via Panama to China using Panamax sized vessels, accounting for about 430 shipments per year, with peak season between July and December. Freight rates from the US Gulf on 66,000 mt/10 percent front-haul cargoes to China have recently started to break to the upside from a year-long tight trading band of $42-$44 per tonne, to spot market cargoes being moved at just under $46 per metric ton. Expectations are rising that freight could hit $50 per tonne during October.

So far this year Chinese buyers have bought close to 14 million tonnes of Brazilian beans for Q4 discharge, which is a new record. According to the U.S. Department of Agriculture, Brazil produced 120 million tonnes of soybeans in the 2017-2018 season, exporting 64 percent of that volume.


Brazilian cargoes are being shipped at close to $37 per tonne for similar sized cargoes, up from $31 per tonne at the start of this year, with expectations growing of a $40 per tonne market around the corner.

Chinese crushers are resisting as best they can.

Last month Chinese media reported on initiatives to replace soybeans with the use of low-protein formula in animal feed to the tune of 6 million tons, and that the country's buyers would raise imports of animal feed made of sunflower seeds, palm seeds and rapeseed with a potential to displace up to 5 million tons of soy-meal demand.

Imports of processed soy-meal is also increasing, of which Argentina is the world's top exporter. The Argentine Government recently presented China with a list of companies seeking permission to export soy meal, including the local units of Bunge and Cargill.

Argentina which produces 44.6 million tons of soybean meal per year could start buying US cargoes for processing to make up for a shortfall in supply and China may end up buying US soybeans that have been processed in Argentina.

If a supply shortage from Brazil and Argentina materializes it would become unavoidable for China to continue to import US soybean cargoes going into winter with an estimated volume in the Q418-Q119 season at around 15 million tons, putting China back on track to match the import volumes from the US seen in 2017.


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Posted-In: China Tariffs Freight soybeansNews Emerging Markets Commodities Global Markets