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Analysis: China could face soybean supply issues in Q4 on US-China tensions: sources


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New Delhi — China -- the world's largest soybeans importer and crusher -- could face beans supply issues in the fourth quarter of 2020 due to the US-China tension over COVID-19 and dwindling Brazilian soy stocks, market analysts told S&P Global Platts.

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The Asian nation processes over 80% of imported beans into animal feed to fulfill its burgeoning domestic meat production and consumption needs.

China is forecast to import 96 million mt of soybeans and crush in the domestic market 93 million mt, up 4% and 7.5% year on year respectively, in marketing year 2020-21 (October – September), as its livestock sector works to rebuild hog and sow herds decimated by the African swine fever epidemic in 2019, according to the US Department of Agriculture's May supply and demand report.

The Chinese crushing industry is heavily dependent on Brazilian and US soybean imports to meet its crushing needs as its domestic soy output barely fulfills 20% of crush demand, a Chinese trader said. Both Brazil and the US account for over 80% of soybeans supply to the world.

On average, China buys 60% of beans from Brazil and 30% from the US annually, customs report said.

In the first half of a calendar year, Chinese crushers buy more Brazilian soybean shipments, coinciding with the South American country's harvest. In the latter half, while Brazilian soy stocks start to dwindle, China starts buying more US beans.


Two of the world's biggest economies have been in loggerheads over origin and mismanagement of the coronavirus pandemic. While Trump administration has blamed China for the pandemic deaths and threatened punitive actions, the Chinese government has responded with counter-allegations of conspiracy and rhetoric.

"As I have said for a long time, dealing with China is a very expensive thing to do," US President Donald Trump tweeted last Wednesday. "We just made a great trade deal, the ink was barely dry, and the world was hit by the plague from China."

"100 Trade Deals wouldn't make up the difference - and all those innocent lives lost!" Trump added.

Under the US-China 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 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 reserve, US officials don'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, said a top US trade official.

However, market participants are skeptical amid ongoing Sino-US 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.

"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 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.

China could face shortage of soybean in Q4 of 2020 if the Sino-US tension persists, said Rosa Wang, analyst with agro consultancy JCI China. Buying soybeans from other countries, such as Argentina, could not be sufficient.


With the Brazilian currency losing 45% value year on year, country's soybean farmers have already sold 85% of current crop at high profit margins, sources said.

The South American nation shipped out 33.6 million mt of soybean in first four months of 2020, up 34% year on year, with China receiving 74% of the volume, Brazilian trade department data showed.

Brazilian soybeans continue to set monthly exports record and could run out of stocks by last quarter, said Pete Meyer, head of grain and oilseed analytics, S&P Global Platts.

By the end of September, Brazil may not have enough soybeans to export as its domestic usage has also increased due to increased biofuel mandate, an agro analyst said.

Assuming front loaded Brazilian soy exports for 2020 to dwindle by September, the US soybean is expected to pick up from October through January 2021, said Terry Reilly, senior commodity analyst at Futures International.

But if US-China trade tensions escalate, soy imports by China may fall as low as 7% on earlier projections to 87 million mt in 2020-21, Terry added.