China’s soy crushers may be facing a winter without US beans

[BEIJING] Just days before the start of the US export season for soybeans, the world’s top importer does not appear to have bought a single American cargo for the coming year.

The impasse between China and the US, long its second-biggest supplier, comes as the two governments negotiate an end to the trade hostilities that have roiled commerce between the countries since Donald Trump returned to the presidency. American farmers have said that the stalemate leaves them headed towards a financial precipice, but US government data suggests that Chinese buyers are standing pat.

China imposed retaliatory tariffs on US soybeans in March, making cargoes less competitive. The US harvest typically starts in September, which marks the shift from one export season to the next. Chinese mills that crush the oilseed into animal feed will usually book ahead to take advantage of the cheaper prices and ensure their needs are met for the first few weeks or months of the crop year.

The hold-up this time seems to be the trade talks that have been extended to Nov 10, with Beijing in no mood to give up a bargaining chip. Although Chinese commodities purchases are just one aspect of the discussions, during the first Trump administration, soybeans in particular loomed large as a way to help close what the US characterised as an unfair trade deficit with China.

The market is highly seasonal, with American supplies dominating until the southern hemisphere harvest is gathered and shipments from China’s top supplier, Brazil, become available. That could, in theory, mean a shortage until the next wave of Brazilian beans is ready from February.

The hope, of course, is that normal service will resume after Washington and Beijing strike a deal favourable to both their farming constituencies. But if that’s too tall an order, the consensus among traders and analysts is that Brazil should have enough old-crop stockpiles to cover the gap, while China could always tap its own huge reserves to meet its needs.

Its crushers have already scooped up large quantities of Brazilian soybeans in the past few months, with more on the way. Arrivals in the next three months are expected at over 30 million tonnes, according to Chinese commodities consultancy Mysteel. This decade, China has imported a total of between 90 million and 105 million tonnes a year.

Brazil had around 37 million tonnes – or roughly 22 per cent of its crop – from last season still to sell as at Aug 5, according to consultancy Safras & Mercado.

Other levers

If China does not take US beans, it can just buy from Brazil or Argentina, said a manager at a major Chinese crusher, who declined to be named as he was not authorised to talk to the media. He said that his plant has lined up South American cargoes to November.

Still, avoiding the US is not risk-free.

“Brazil can cover most of their needs, but seasonality makes it dangerous to rely only on South America,” said Kang Wei Cheang, an agricultural broker at StoneX Group in Singapore. “That’s why, even with politics in play, China usually comes back to US beans when Brazil’s window tightens.”

And Chinese crushers will almost certainly have to pay higher prices. Brazilian beans have surged nearly 20 per cent since the start of the year and are trading at a hefty premium to their US competition.

China’s other levers are to further diversify supplies or reduce outright demand. To that end, cargoes of soybean meal from Argentina are being trialled, while Beijing continues to push for less soymeal in recipes for livestock rations as well as restraint on the size of its vast pig herd. BLOOMBERG