September 18, 2019 / 9:31 AM / a month ago

Column: Will China's latest U.S. soybean grab be another letdown for the market?

FORT COLLINS, Colo. (Reuters) - China is back in the U.S. soybean market for the first time in three months, but it appears to be motivated more by goodwill than necessity for now, and its impact on U.S. supply remains muted at this point.

A crop scout walks through a soybean field to check on crops during the Pro Farmer 2019 Midwest Crop Tour, in Allen County, Indiana, U.S., August 19, 2019. REUTERS/P.J. Huffstutter/File Photo

U.S. soybean exports to China in the recently concluded marketing year were likely the smallest in about 12 years, so market participants pay extra attention anytime China is said to be buying the U.S. oilseed.

On Thursday, traders reported that China had bought a large volume of U.S. soybeans for shipment later this calendar year. The U.S. Department of Agriculture confirmed total sales of 720,000 tonnes of soybeans thus far in three separate announcements on Friday, Monday and Tuesday.

The purchases come after last week’s talk that Beijing may place goodwill orders of U.S. farm products ahead of high-level trade talks set to resume next month.

Good-faith purchases have been common over the last year, so traders have generally assumed this has been the motivation anytime China has bought U.S. soybeans since July 2018 when Beijing levied a steep 25% tariff on the oilseed.

Now, analysts struggle to determine if China actually needs to buy U.S. soybeans at present. The biggest question mark revolves around the outbreak of African swine fever in its hog herd, which has decimated the population by at least 38% since it began a year ago.

This has curbed pork supply and boosted pork retail prices in China, which are up 78% from year-ago levels, all while reducing demand for feed. It has also prompted the country to purchase large amounts of U.S. pork despite steep tariffs.

DO THEY NEED BEANS?

China’s hog herd may be a lot smaller than last year, but so is the country’s supply of soybeans. As of Sept. 15, soybean stocks at China’s ports, where the beans are crushed into protein-rich meal, stood at 6.6 million tonnes according to industry portal Cofeed.

That is down 20% from year-ago records but in line with the same date in 2015 and 2016. The 6.6 million tonnes are also up 19% from two months earlier after soybean arrivals hit their highest levels of the year in July and August.

More soybeans are set to arrive in China in the coming weeks. The latest shipping lineup for top exporter Brazil shows about 4.8 million tonnes of soybeans set to leave the country this month, with about 75% destined for China. The full-month volume would top Brazil’s bean export record for September, set last year, by 4%.

The United States likely shipped at least 2.5 million tonnes of soybeans to China in August, the largest monthly volume since January 2018. Shipments continued early this month.

Imports from Brazil should in theory wind down soon as that supply dries up, and the new crop will not be ready to ship in earnest until February at the earliest. Much like a year ago, the question now is whether China can survive on the meager shipments until early 2020 without having to rely too heavily on U.S. imports, especially if the trade war remains unresolved.

That problem may at least have a partial solution. Beijing on Tuesday announced it will allow imports of soymeal from Argentina, the world’s largest supplier of soy products. It is uncertain how soon that would begin, though.

USDA sees China’s soybean imports in 2019-20 at 85 million tonnes, up from 83 million in the previous year but well off the 94 million from two years earlier. USDA’s Beijing attaché pegs 2019-20 imports even lower at 80 million tonnes.

China’s agriculture ministry on Thursday revised its 2019-20 import forecast down to 84 million tonnes from 84.9 million.

USDA’s official forecast has Chinese pork production sliding 10% on the year in 2019. The agency’s Beijing post sees production falling another 8% to a 13-year low in 2020, implying that demand for soybeans and other feed ingredients could remain weak for a while longer.

DOES IT MATTER?

In terms of the U.S. soybean balance sheet, the 720,000 tonnes of Chinese sales in recent days does not make a huge dent in supplies.

As of Sept. 5, total 2019-20 bean sales to the Asian country stood at 1.07 million tonnes, and nearly 75% of that was rollover sales from the previous marketing year that were unshipped. This puts current sales at about 1.8 million tonnes.

That is above the year-ago volume of 1.46 million tonnes, which was the lowest since 2005. China would steadily cancel about a million tonnes of that balance until early December when trade talks ignited and the good-faith purchases began.

China would go on to secure another 13.7 million tonnes of U.S. beans for the 2018-19 marketing year, most of which followed promises made during trade talks in early 2019.

But now, China has far fewer hogs to feed than a year ago, so this combined with the ongoing trade war makes it nearly impossible to predict China’s impact on the U.S. soybean market over the next year.

USDA has taken a relatively conservative approach to 2019-20 U.S. soybean exports, predicting them to rise 2% from 2018-19, which was a five-year low. But total sales to all countries are down 44% on the year right now, the lightest for the date in 11 years, so the path remains uphill for now.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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