China turns to US soybeans as Brazilian real firms: sources

China — world's largest soy importer — restarted purchasing US soybeans as the Brazilian real strengthened in recent weeks, making American exports more competitive with their South American counterparts in terms of price, sources said.

The real as reached a two-month high of 5.06/$ June 3 due to a weaker greenback on the prospects of global economic recovery from the coronavirus pandemic, an analyst said.

Optimism about a global economic recovery due to the easing of lockdowns in Europe and Asia has undermined the dollar in the past couple of weeks.

Demand for the dollar dissipates when optimism grows and risk aversion decreases, with investors pushing their money back into equities and debt markets.

For the past few months, due to a weaker real, Brazilian soybeans were selling at an average discount of 10 cents/bu to US beans, a Chinese trader said. However, due to the recent reversal of fortunes in the currency market, US soybeans have become more competitive with their Brazilian counterparts.

According to S&P Global Platts data, SOYBEX FOB Santos for July loading was assessed at $361.02/mt June 3, while SOYBEX FOB New Orleans was assessed at $341.90/mt.

State-owned Chinese entities are said to be buying US soybeans despite the ongoing diplomatic spats between the two nations.

"We have seen Chinese private crushers and Chinese state-owned soybean buyers out in the market to purchase US soybeans this week," a trader said.

However, state-owned Chinese entities paused their US soybean buying spree somewhat, and purchased around 10 cargoes of more expensive Brazilian soybeans.

And further tensions between the world's two economic superpowers could destabilize their Phase 1 trade deal.

Under the 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.

Both countries are yet to agree on key issues, such as proprietary information theft, technology transfer, Hong Kong, Taiwan and the South China Sea, an analyst said.

In the coming months, any small incident or comment from either side could jeopardize the Phase 1 trade deal and restart the retaliatory tariff feud.

LIMITED BRAZILIAN SUPPLY

Brazilian farmers are reluctant to sell rest of their soybean stocks in the current market situation.

Brazilian farmers have already marketed over 85% of the estimated 120 million-123 million mt of 2019-20 (September 2019-August 2020) crop year's soybeans, a Brazilian trader said. With a stronger Real, farmers are expected to hold onto their soybean reserves and wait for the currency to depreciate.

The Real lost over 40% of its value between January and late May, before its recent recovery.

According to Brazilian economists, the Real could slide again toward 6/$ in the coming weeks due to the impact of the pandemic on the country's economy.

Brazil's government revised its 2020 forecast to an economic contraction of 4.7%, compared with a zero growth estimate in March. Brazil's economy ministry forecasts the economic crisis will worsen due to the pandemic, and will mean fiscal deterioration, the closing of companies and more unemployment through July.