Soybean Market Waits for Chinese Buyers

USDA Confirms 41.5 MB of US Soybeans Sold to China; Timing, Amount of Further Purchases Unclear

Lin Tan
By  Lin Tan , DTN China Correspondent
According to China market rumors, the Chinese government had given permission to Sinograin, China's national strategic grain reserve company, to buy 3 mmt of U.S. soybeans, and to COFCO, China's largest state-owned grain import and export company, to buy another 2 mmt. (DTN photo illustration)

This article was originally posted at 6:30 a.m. CST on Wednesday, Dec. 12. It was reposted with additional information at 8:56 a.m. CST on Thursday, Dec. 13.

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BEIJING, China (DTN) -- Market rumors have been circulating that China plans to buy U.S. soybeans following a pledge made by Chinese President Xi Jinping to U.S. President Donald Trump during the Group of 20 meeting in Buenos Aires, Argentina, on Dec. 1. However, it remains unclear how much China will buy and when.

USDA's Foreign Agricultural Service on Thursday confirmed that private exporters reported export sales of 41.5 million bushels of U.S. soybeans for delivery to China during the 2018-19 marketing year.

China Daily reported Tuesday that Chinese Vice-Premier Liu He and U.S. Treasury Secretary Steven Mnuchin had a phone call on Tuesday to exchange views on pushing forward the next stage of trade talks between the two countries.

"The two sides exchanged views on implementing the consensus that top leaders reached in the last meeting and advancing the timetable and roadmap for the next round of trade negotiations," according to the China Commerce Ministry, China Daily reported.

"It is not clear who will buy, when they will start to buy and how much they will buy, though the Commerce Ministry said that China will increase U.S. imports, especially of agricultural, industrial and energy products," said Jun Wang, a professor of agricultural economics at the China Agricultural University.

So far, on the China side, officials did not say the country will "immediately" import a "substantial" amount of U.S. agricultural products, but the Commerce Ministry did say it would increase imports according to domestic demand.

According to China market rumors, the Chinese government had given permission to Sinograin, China's national strategic grain reserve company, to buy 3 million metric tons (mmt) of U.S. soybeans, and to COFCO, China's largest state-owned grain import and export company, to buy another 2 mmt. There are also rumors that the two companies are negotiating with some U.S. sellers on soybean basis. But private importers may not be able to get involved.

"It makes sense to let the state-owned companies import soybeans from the U.S., as the Chinese government already declared early this year that state-owned grain importers can get an import tax rebate with permission," said Wang. "The Chinese government may not remove the 25% tariff from soybean imports now while the U.S. still keeps the tariffs it already charged on goods imported from China."

If China keeps the 25% tariff on soybean imports from the U.S., non-state-owned companies will not be able to buy U.S. soybeans because of a negative crushing margin. A calculation of soybean crushing margins in the Dalian region of China shows that Brazil soybeans gave a profit of $21 per metric ton ($0.57 per bushel), while U.S. soybeans, with the 25% tariff, will lose $76 per metric ton ($2.06 per bushel).

"Even if only the state-owned companies buy U.S. soybeans, it is a good sign both for U.S. producers and for Chinese consumers, as China soybean imports had decreased substantially in recent months," added Wang.

But the U.S. may not be able to export the same amount of soybeans to China even with an agreement between the two countries to remove the import tariffs. Chinese buyers had bought more old-crop beans from Brazil recently and will buy more of Brazil's new crop next year.

"Brazil had exported more than expected soybean to China," said Andree Nassar, executive president of ABIOVE, the Brazilian Vegetable Oil Industries Association. "Brazil will export close to 82.7 mmt of soybean in 2018, more than 14.6 mmt compared to last year. Most of the extra exports went to China. This brings our final carryout down to 1 mmt, compared to more than 10 mmt last year."

Because of an early planting season this year, some Brazilian farmers will start to harvest their soybeans next week, and many more of them will start to harvest in January. Brazilian farmers may harvest more than 20 mmt of new-crop soybeans by the end of January.

"If China announces the first batch of U.S. soybean imports this month, importers need time to negotiate with exporters first," said Wang. "It takes time for the first load of soybean cargo to be performed in U.S. ports, maybe as early as January. That will come just the time Brazilian new crop is available in the market. So U.S. soybeans need to compete with Brazilian new-crop soybeans in the same export time window."

Even if the import volume is not huge compared to what China used to buy from the U.S., it will help the two countries to come back to the negotiation table, and would help maintain some of the market share of U.S. soybeans in the China market, added Wang.

Questions for Lin Tan may be sent to Talk@dtn.com

(AG/BAS)