Half of U.S. soy exports to China would fall afoul of new rules

U.S. soybeans will likely become more expensive to ship to China as a result

Employees even out a load of soybeans on a Chinese cargo ship at the Brazilian port of Santos. U.S. farmers say new soybean standards imposed by China will put them at a disadvantage.

Half of U.S. soybeans exported to China this year would not meet Chinese rules for routine delivery in 2018, according to shipping data reviewed by Reuters, signalling new hurdles in the US$14-billion-a-year business.

More stringent quality rules, which took effect on Jan. 1, could require additional processing of the U.S. oilseeds at Chinese ports to remove impurities. This could raise costs and reduce sales to the world’s largest soybean importer, according to U.S. farmers and traders.

Half of the 473 vessel shipments in 2017 and half the total 27.5 million tonnes of U.S. soybeans exported to China this year contained more than one per cent of foreign material, exceeding a new standard for speedy delivery, according to U.S. Department of Agriculture (USDA) data compiled by grain broker McDonald Pelz Global Commodities LLC.

“It’s going to raise the costs of sending the soybeans to China,” said Richard Wilkins, a Delaware farmer and former chairman of the American Soybean Association.

Better quality

Growers often receive a higher price for selling soybeans with one per cent or less foreign material, known as No. 1 grade, because importers pay more for better quality.

Wilkins said the change would deliver higher-grade soybeans to Chinese buyers without requiring a premium price. “They basically want to pay us for No. 2 grade but they want it to be No. 1 grade,” he said.

Osama El-Lissy, a deputy administrator at the USDA, said farmers should not face additional burdens under the new standards.

“Nothing in the agreement we have with China would lead anyone to believe that there would be a change in whatever price arrangement (is) currently being agreed to,” El-Lissy said.

He said Chinese buyers already may subject some shipments to additional processing. “Whatever time it’s taking now,” he said, “is likely to be the same amount of time that would apply post-Jan. 1.”

China will routinely accept U.S. soybean shipments with one per cent or less foreign material, according to the USDA. Existing specifications for No. 2 soybeans, the type most common in U.S. export contracts, have allowed for up to two per cent of dirt or weed seeds.

The new agreement by the USDA to label cargoes with more than one per cent foreign material came after China raised concerns about weed seeds in September.

China accounts for roughly two-thirds of global soy imports, totalling about 86 million tonnes this year through November, primarily from Brazil, the United States and Argentina. Brazil and Argentina are not covered by the same agreement as the United States.

Income hit

U.S. soybean farmers and export traders fear the deal will hurt incomes already straiSned by low crop prices brought on by four years of bumper crops. Reducing the impurities to one per cent or less could increase U.S. exporters’ costs by 15 U.S. cents per bushel, an ED&F Man Capital Markets analyst said.

Top agricultural traders, including Archer Daniels Midland, Bunge and Louis Dreyfus, already have policies to encourage farmers to deliver soybeans with less than one per cent of foreign matter.

But the penalty for falling short is relatively minor. At elevators operated by each of the companies, they deduct the weight of foreign material in excess of one per cent from weighings.

The USDA plans to advise U.S. soybean farmers how to adjust 2018 production and harvesting techniques to reduce seed contamination. Some weeds have thrived in soybean fields after developing resistance to the widely used Roundup herbicide.

ADM said it supported efforts by the North American Export Grain Association, a trade group that worked with the USDA on the agreement, “to achieve an outcome that is beneficial for American agriculture.” The association, Bunge and Louis Dreyfus did not immediately respond to requests for comment.

Cargill, another large soybean handler, said it was evaluating the new policy and the potential impact on its business.

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