London — Hopes of a revival of US-origin soybean exports to China have taken a hit from US President Donald Trump latest comment on tariffs on Chinese goods, sources said Monday.
Trump on Sunday threatened to escalate the trade war with fresh tariffs on Chinese goods, amid slow progress in trade talks.
"Trump's tweet could mean end to US farmers' hopes of selling large soybean inventories to China," Xu Jianfei, director of consulting and brokerage firm OCI-China, told S&P Global Platts.
"US farmers may be forced to sell their beans stocks at a discount to other markets such as EU, leading to further narrowing of the price spread over South American-origin soybean."
Last July, China, world's biggest soybean importer, put an additional 25% import tariff on US-origin soybeans in response to tariffs the US had placed on Chinese goods.
As a result, US soybean exports to China from September to February fell 85% year on year to 4 million mt, as Chinese buyers looked to Argentina and Brazil
As of March 29, US soybean export commitments for the 2018-19 marketing year (September-August) totaled 12.9 million mt, down 55% year on year, according to the US Department of Agriculture data.
Assessments by Platts on Friday showed SOYBEX FOB Paranagua (June) at $326.02/mt. SOYBEX FOB New Orleans (June) was assessed at $323.80/mt and SOYBEX CFR China (September) was at $358.25/mt.
"Given dropping CBOT price, crush margin in China remains profitable and with increasing tension between US and China, crushers might consider to start covering more forward month's contract including up to August shipment, as they anticipate Brazilian basis to rise if the US-China trade talks fail," a trader said.
If the trade talks fail, Chinese buyers will cancel all prior trade commitments with US soybean traders, sources said, adding that in the long run, South American-origin soybean could gain the most if the talks fail.
In March, Brazil's share of China's soybean market rose to 57%, an increase of 16 percentage point year on year, while the US share declined 24 points to 31%, Chinese customs data showed.
As of March 19, the import price for US soybeans, including the additional 25% tariff, was about $576/mt, compared with a price of $455-$470/mt for South American-origin soybeans, according to USDA data.
"In the short term, South American soybean basis will rise. However, ample supply and competition from US soybeans will limit rising prices later," Xu said.
The global soybean market is oversupplied. Even if China does not import US-origin soybean, the supply from South America is sufficient for China, which is reeling from the impact of an outbreak of African swine fever, Xu said.
Overnight, CBOT futures trade was active with more than 65,000 contracts of July corn, over 45,000 contracts of July soybean, and over 11,000 contracts of July wheat changing hands, said Matheus Pereira, Director of agricultural consultancy ARC Mercosul.
"In the short term, all origins of soybean will suffer losses with CBOT going down," Matheus said.
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