China buys bulk of Brazilian soybeans in April despite US-China trade deal

New Delhi — China purchased 5.9 million mt of Brazilian soybeans and 0.6 million mt of US beans, out of the total April soybeans imports of 6.7 million mt, accounting for 88% and 9% respectively, the China custom's department data showed on Monday.

China -- world's largest soybean buyer - has imported 24.5 million mt of beans in the first four months of 2020, compared with 24.14 million mt during the same period last year, customs data showed. While Brazilian beans comprised 53% of China's soy purchases during January-April, the US-origin amounted to only 32%.

Private Chinese soybean buyers are purchasing Brazilian soybeans, while the state reserves are importing more expensive US-origin beans to show their commitment towards the Phase 1 trade deal, a market source said.

A falling Brazilian real, which has lost almost a third of its value since January, has boosted Brazilian soy's price competitiveness against the US. Market participants said Brazilian soybeans were currently selling at an average discount of 10 cents/bushel to US beans at Chinese ports.

Despite the US-China Phase 1 trade deal, the Chinese buyers are ramping up cheaper Brazilian soybeans to cover for market uncertainties in coming months, market sources said.

China is also not taking supply-side risks in the coming months. For June and July, its soy import coverage is estimated to be almost complete, market sources said. In fact, Chinese buyers are now mostly focused on booking August shipments of cheaper Brazilian beans.

UNCERTAIN US-CHINA TRADE DEAL

Under the Phase 1 trade deal, signed on January 15, after an 18-month long trade spat, Beijing promised to purchase $200 billion worth of US products in two years, with agricultural imports valued at $80 billion, including raw soybeans.

Soybeans comprise of over 60% of US agro exports to China annually, said an analyst. So, for Phase 1 trade deal to succeed, China may have to import over 43 million mt of US beans in 2021 itself.

Despite recent purchases of US soybeans by China's state reserves, USDA doesn't see massive volumes traded until the last quarter.

China is expected to start purchasing more US soybeans once the soy harvest starts in September, according to the USDA report.

However, market participants are skeptical amid ongoing US-China diplomatic spats and unresolved differences. In the last two years, both sides reached truce on two occasions, only to be followed by more trade tariffs.

US-China trade relationship seems to have hit turbulence recently due to cross-allegations on the coronavirus pandemic origin and spread, market sources said. Phase 1 trade deal could be under pressure if pandemic-related diplomatic spats continue between Beijing and Washington.

"I see the 2nd semester of 2020 full of uncertainty," said Matheus Pereira, director of agro consultancy ARC Mercosul. "We expect US-China tension to intensify as the US presidential elections approach in November."

Both countries are yet to agree on key issues, such as proprietary theft, technology transfer, Hong Kong and South China Sea, an analyst said. In coming months, any small incident or instigating comment from either side could jeopardize the Phase 1 trade deal and restart the retaliatory tariff feud.