Trade tiff has market over-thinking slow US soya sales to China

Chinese demand for US soyabeans has slowed significantly in the past couple of weeks, worrying some market participants that this is a hint of things to come amid the ongoing trade friction between the two countries. But perhaps they have forgotten that sluggish Chinese business is normal for US soya merchants at this time of year, and there are additional factors outside the US-China trade tension at play.
It is possible that Chinese importers are aggressively avoiding US beans at the moment, but given the timing of the dispute over tariffs, it is hard to say for sure. Further, the time of year makes it difficult to assess the exact impacts of the trade spat on the US export program. In response to the United States' proposed $50 billion in tariffs against Chinese goods earlier this month, Beijing quickly fired back its own list of US products subject to duties, which included soyabeans. US soyabean exports to China were valued at $12.4 billion in 2017.
From China's standpoint, right now might actually be the best time of year to threaten US soyabeans since they are mostly non-essential. Every March, US soyabean shipments wind down while Brazil's freshly harvested crop heads to the ports and the South American country becomes the primary world supplier until about September. Through April 19, Chinese buyers amassed net cancellations of US soyabeans for the second week in a row, totaling 62,700 tonnes over the two weeks.
But China is not focused on US beans this time of year and cancellations of previous bookings are not uncommon, so analysts and traders should not read too far into the situation. In the previous four years, China's purchases of US soyabeans between mid-April and the end of the marketing year in August accounted for less than 5 percent of its annual total, on average.
In addition, US shipments of soyabeans to China during the final five months of its marketing year accounted for 10 percent or less of the total yearly volume sent to the East Asian country. One of the alleged signs that China is avoiding US soyabeans is that the US Department of Agriculture has not flashed a daily soyabean 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 soyabean sale to China between March 31 and July 14. Only one such sale was announced during April 2016. Concern also stemmed from the diversion of US sorghum-loaded vessels earlier this week that had been en route to China. Beijing slapped tariffs on US sorghum imports beginning on April 18, which could have affected up to a dozen cargoes that had set sail in the days and weeks prior.
But these sorghum-based fears should not be projected onto soyabeans. China can afford to substitute US sorghum as feed grain is plentiful and cheap globally. However, it would be nearly impossible for China to shut out US beans for too long because of the immense quantities it requires. On Tuesday, March 2018 import data from China's General Administration of Customs showed the United States had lost a significant share of its typical soyabean business to Brazil. US product accounted for 55 percent of China's haul last month compared with 67 percent in March 2017 and 75 percent in March 2016.
This should be unrelated to the trade tensions, though, as it takes about a month for US soyabeans to load, sail, and disembark in China. Any cargo that was processed in March likely left the United States in February, before soyabeans were involved in the dispute. Chinese purchases of US 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 US shippers benefited later that year. Also, the quality of the 2017 US 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 US-China trade fallout. If Chinese crushers want to avoid US soyabeans 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 US cargoes over the last couple of weeks, despite its proximity to Brazil. Indonesia's purchase of 133,300 tonnes of US soyabeans in the week ended April 19 was its largest such volume since February 2016. Year-to-date sales to No. 2 buyer Mexico are 15 percent larger than at this time last year.