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Opinion: U.S. soy trade stellar in short term

Longer term the outlook for the Chinese market gets very hazy

Market analysts have been trying to gauge China’s forward bean usage as it remains locked in a tit-for-tat tariff dispute with the United States, and the conflict has prompted threats from the East Asian country to severely reduce or ban U.S. bean imports.

The future of U.S. soybean trade with China has also been a leading topic since that trade relationship supports the U.S. soybean market in its current form. The United States and Brazil account for most of the world’s soybean exports and China is the largest consumer.

Recent demand for U.S. soybeans, both exports and crush, has been outstanding, but it offers only short-term consolation to the heavy stock predictions as the China ordeal remains unresolved.

Just how much China can cut its dependence on soybean imports is the million-dollar question, but recent data released by its customs agency might be weighting the answer too generously toward the country’s own interest.

Both Brazil and the United States set monthly records for soybean exports in May and June, shipping nearly six million tonnes more than the same period a year ago. But China claims its July imports fell sharply by 21 per cent from July 2017, its smallest monthly intake since April at 8.01 million tonnes.

Soybean demand from countries other than China has been growing at a fast pace as well, and most of those record U.S. shipments went to other buyers. Brazil is China’s main supplier at this time of year and U.S. soybeans have been selling at a great discount to their Brazilian counterpart.

But the Brazilian shipments have been too heavy to support the idea that Chinese imports could have dropped that much in July, especially when the United States has drawn in some of Brazil’s usual customers. Recent Brazil and China export figures do not fall into line with the linear historical trend, suggesting either the Brazil data is overstated or the Chinese numbers are understated.

Brazil shipped a landslide monthly record of 10.2 million tonnes in July, and the United States also likely shipped a record bean volume for that month, so it will be interesting to see China’s August import number when it is published in a month.

Recently the soybean market found optimism in a report from oilseeds analyst Oil World that China may need to resume purchases of U.S. beans in the coming weeks.

But that does not necessarily provide new information as Brazil typically winds down its exports into August and September, shipping nearly all the domestic supply and storing very little. Basic math proves that if China does not significantly cut soybean use, it will be unable to avoid U.S. soybeans entirely, at least in the short term.

The Oil World report did point out that if China starts importing Argentine soymeal as expected, supplies will not be ample enough in Argentina after its recent crop shortage and it will have to import U.S. beans to fill the quota.

This may only be true through early 2019, though, as the next Argentine harvest is expected to rebound significantly from multi-year lows. This means that Argentina might not necessarily be a new established market for U.S. soybeans.

But the recent sales to the South American country are helping. Through July 26, Argentina had booked 790,000 tonnes of U.S. soybeans for delivery in 2018-19. The largest annual volume of U.S. soybeans to Argentina was about 474,000 tonnes in 1997, and 1998 was second with about 38,000 tonnes.

U.S. soybean sales to China for the new marketing year that begins Sept. 1 usually start picking up around July, but there has been no spike so far and the total bookings stand at 1.33 million tonnes.

Total U.S. sales for 2018-19 are well above last year’s levels and very close to those of 2016. Through July 26, outstanding sales for next year totalled 10.4 million tonnes, anchored by commitments from Mexico, Argentina and several Asian countries. Destinations are unknown for about half of those sales.

Although political leaders have pushed the idea that the European Union members would start buying a lot of U.S. soybeans, the EU has booked only 100,000 tonnes for 2018-19 so far, nothing unusual.

Karen Braun is a Reuters market analyst. The views expressed here are her own.

About the author

Columnist/Reuters

Karen Braun is a Reuters market analyst based in Chicago. The views in this column are her own.

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