Chinese demand for U.S. soybeans has slowed significantly in the past couple of weeks, worrying some market participants that this is a hint of things to come.
But perhaps they have forgotten that sluggish Chinese business is normal this time of year.
It is possible that Chinese importers are aggressively avoiding U.S. beans at the moment, but given the timing of the dispute over tariffs, it is hard to say for sure.
In response to the United States’ proposed US$50 billion in tariffs against Chinese goods earlier this month, Beijing quickly fired back its own list, which included soybeans. U.S. soybeans.
From China’s standpoint, right now might actually be the best time of year to threaten U.S. soybeans since they are mostly non-essential as South American new crop supply comes in.
But traders should not read too far into the situation.
In the previous four years, China’s purchases of U.S. soybeans between mid-April and the end of the marketing year in August accounted for less than five per cent of its annual total.
One of the alleged signs that China is avoiding U.S. soybeans is that the U.S. Department of Agriculture has not flashed a daily soybean sale to China in more than two weeks.
This could be expected, though, because China buys from Brazil at this time of year. In 2017, USDA did not explicitly announce a daily soybean sale to China between March 31 and July 14. Only one such sale was announced during April 2016.
On May 2, March 2018 import data from China’s General Administration of Customs showed the United States had lost a significant share of its typical soybean business to Brazil. U.S. product accounted for 55 per cent of China’s haul last month compared with 67 per cent in March 2017 and 75 per cent in March 2016.
This should be unrelated to the trade tensions, though, as it takes about a month for U.S. soybeans to load, sail, and disembark in China. Any cargo that was processed in March likely left the United States in February.
Chinese purchases of U.S. beans have lagged since the 2017-18 marketing year began in September, particularly in relation to the previous year, and it is important to remember why.
For one, Brazil’s 2016 crop fell slightly short of expectations due to drought, and U.S. shippers benefited later that year. Also, the quality of the 2017 U.S. harvest was not as strong as in the previous couple of years, yielding lower protein and oil content upon crushing.
Brazilian premiums over Chicago prices have surged to unusually high levels as a result of the U.S.-China trade fallout. If Chinese crushers want to avoid U.S. soybeans for now in favour of Brazil, they will have to pay the price.
But perhaps not everyone would enjoy higher Brazilian prices, and this could drive more non-China customers to the United States over the next several months.
This has already started to happen to some extent. In a rare move, drought-stricken Argentina booked a handful of U.S. cargoes over the last couple of weeks, despite its proximity to Brazil.
Year-to-date sales to No. 2 buyer Mexico are 15 per cent larger than at this time last year.
Karen Braun is a Reuters market analyst. The views expressed here are her own.