Financial Times, July 18th, 2018

Retaliatory tariff by Beijing leads Chinese buyers to cancel US orders

Brazilian soyabean premiums have surged to a near four-year high against those of the US as the US-China trade warleads to a scramble by Chinese traders for alternative sources.

Soybeans exported at the Brazilian port of Paranaguá were selling for $396.60 a tonne, $66.10 more than the commodity sold on the US southern Gulf of Mexico coast.

The premium is the highest since September 2014 and comes as Chinese buyers have been cancelling their US orders as the 25 percentage point tariff increase by Beijing on US soyabean imports took effect this month.

“Premiums have jumped as soon as the Chinese started purchases of Brazilian beans,” said Stefan Vogel, head of agri commodity markets research at Rabobank.

He added that at current levels, US soyabean prices plus the tariffs and freight to China were approaching parity with Brazilian soyabeans and shipping costs, limiting a further move upwards on the premium unless there was a dramatic shift in Chinese demand.

According to US Department of Agriculture data, more than 830,000 tonnes of soyabean exports to China have been cancelled since April, the equivalent of about 14 vessels. This contrasts to 170,000 tonnes last year.

The USDA numbers also show a sharp rise in cancellations of shipments to “unknown” destinations, a bulk of which are normally destined for China, according to Agricensus, a price information agency.

Looking at the USDA data and talking to traders, “more than 2m tonnes that were [eventually] China-bound have been cancelled — that’s the equivalent of around 30 vessels”, said Andy Allan, analyst at Agricensus.

Latest Brazil export figures of the oilseed to China show that in March and April the Latin American country sold 32.5m tonnes, up 1.7m tonnes, or 6 per cent, from 30.8m last year.

China is the top soyabean importer for the world. Its retaliatory tariff move has sent US prices tumbling. Soyabean futures in Chicago fell to a nine-year low of $8.10 ½ a bushel earlier this week, although they have since rebounded.

The USDA, in its monthly supply and demand estimates published last week, cut its forecast for China’s soyabean imports from 103m to 95m tonnes in the coming marketing year, reduced its outlook for US soyabean exports by nearly 11 per cent to 55.5m tonnes and raised its estimate of Brazilian exports by 2m tonnes to 75m, a record high.

The Brazilian price has also been supported by a truckers’ strike, which has limited the flow of soyabeans to the ports. As Chinese buyers’ cancellations depress the price of US soyabeans, buyers in other parts of the world are taking advantage of the shifts.

Since March, US soyabean exports to countries other than China have been running 50 per cent ahead of last year, according to a USDA report.

Soyabean crushers in Europe, for example, are switching from Brazil to the US, said Mr Vogel. “They are not taking Brazilian beans. The US is 20 per cent cheaper,” he added.