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Analysis: China's soybean cargo flow from US grows slowly, despite more tax-free quotas issued

Singapore — China has started shifting its soybeans buying activities from South America to US origin.

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According to the latest USDA report on October 24, new crop soybean sales to China since September 1 have reached 6.19 million mt, 545% up from last year, but still fall behind the same period of 2017, which it was at 15.97 million mt, before the trade dispute between the two countries started.

The recently increased sales of US soybeans were largely attributed to the positive progress of trade negation between the US and China since early September. As part of the deal to relieve the trade dispute, the Chinese government authorities have issued roughly 3 million mt of import tax-free quotas on US soybeans to big Chinese private soybeans crushers and International soybeans trading firms. US soybean Imports outside of the tax-free quotas, would still incur an additional 30% tariffs.

Brazilian old-crop soybean stocks are close to being sold out at the moment. A trader from an international grain trading house based in Shanghai told Platts that Brazilian farmers have completed 93% of sales this year. Old-crop balance left for soybeans sale is only at around 8 million mt, a calculation based on a 115-117 million mt estimated production for this crop year.

According to local Chinese crushers' average estimates, China needs to import roughly 5-6 million mt of soybeans each month from November to January. Currently, there is limited supply of old-crop Brazilian soybeans while new-crop waiting to be ready to export in February at the earliest.

"If China continues to rely on Brazilian supply from the remaining limited stocks, there is little chance that China to negotiate a favorable price on Brazilian soybeans," a crusher said.

According to S&P Global Platts assessment, CFR China soybeans price moved higher by $24.62/mt from $388.47/mt on August 1 to $413.09/mt on October 31.

The US administration of President Donald Trump has pushed China hard to purchase a huge volume of US agricultural products, including soybeans in the center of this topic, throughout the trade negotiations. However, details like the estimated total volume of soybeans and purchasing time frame are yet to be finalized between two parties, as China would like to buy based on market conditions.

"We are in the best time to increase purchase for US soybeans to facilitate with the trade negotiation," a trader said.

For Chinese soybeans buyers, rising supply of US soybeans available to Chinese soybeans crushers could help Chinese soybeans buyers avoid paying the high price for Brazilian soybeans, which are currently in tight supply.

At the same time, strong soybean demand from China will greatly relieve US soybeans farmers' pressure as they have large unsold old-crop stock ahead of harvest pressure for their new-crops at this moment.

Market participants expect the Chinese government to issue a 10 million mt quota for US soybeans. Chinese soybean buyers have not shifted the demand to US soybeans completely as the Chinese government authorities are giving out tax-free import quotas by splitting them into many smaller volume spreads over several months.

"In the next few weeks, assuming Chinese government will continue release additional soybeans import quotas, market will likely shift to buy more US soybeans as there are cheaper soybeans available from US at this moment. At the same time, by splitting the 10 million mt of quotas into smaller volume spread over several months could prevent a surge in US soybeans price. " a trader said.


Firstly, there is not a significant price gap between soybeans from US and Brazil origin, a crusher said. As per the S&P Global Platts CFR China assessment, US origin soybeans are trading on average at a 20 cents/bu discount to Brazil soybeans for November to January shipments at the moment. Considering a 10 cents/bu quality spread, US Gulf soybeans are selling at a 10 cents/bu discount to Brazilian soybeans. Market participants believe that the price gap will shrink further if China continues buying US soybeans.

Another concern to prevent a large purchase inflow on US soybeans is that buyers have been unclear about the Chinese customs procedures for exempting the 30% tariffs.

"If the importer still need to pay the 30% tax when cargo arrival, and then get the refund months later, the additional $120/mt duty cost would be a great cash burden to the buyers, " a local crusher said.

One crusher said that plenty of supply from State reserves is another uncertainty for forecasting China's demand for US Soybeans.

He said, currently, Chinese state reserved around 6-7 million mt of US soybeans brought in earlier this year, at price lowered by 30-50 cents/bu from market price at this moment.

"This US soybeans reserved volume is able to support one and a half month of Chinese soybeans crushing demand. Chinese could release the US soybeans reserves if necessary to cover the existing soybeans demand for December and January ahead of Brazilian new crops soybeans harvest," he added.

In addition, US soybeans are facing great competition from cheap Brazilian new crops. Based on figures from traders, Brazil February soybeans were offered 40 cents/bu cheaper than US Gulf soybeans.

While US sales fell behind, Brazilian soybeans farmers were ramping up their sales for the new crop soybeans.

According to statistics released by market traders, currently there is roughly 35% of Brazilian new crop soybeans being sold from Brazilian soybeans farmers, ahead of the average sales in normal years.

-- Allan Chen,

-- Edited by James Leech,