by Asim Anand, September 5, 2019

New Delhi — Growing uncertainty around the US-China trade dispute has left American farmers grappling with high soybean stocks and falling soybean prices, as they face limited options in selling their inventory.

US soybean stocks are estimated at 29.13 million mt end-August, which is the end of the 2018-2019 marketing year, up 144% year on year, the US department of Agriculture said in its monthly report.

The average price of US soybean in the 2018-2019 marketing year is estimated at $8.50/bu, down 9% year on year, as sales plummeted and inventory shot up due to the trade tensions, the USDA report said.

Ever since the trade tensions started, US soybean has been selling at a discount of $15/mt to the Brazilian beans, S&P Global Platts data showed.

According to Platts assessments, since January 2019, the average monthly loading price of SOYBEX FOB Santos and SOYBEX FOB Paranagua were assessed at $355.96/mt and $355.34/mt, respectively. While the average monthly loading price of SOYBEX FOB New Orleans soybeans was $340.49/mt.

Before China slapped a tariff on US soybeans in July last year, China bought 29.6 million mt of US-origin soybeans, accounting for 55% of total 2017-2018 (July-June) US exports. Since July 2018, China’s imports of US beans have fallen 77% year on year to 6.7 million mt.

“Since China accounts for almost 65% of global soybeans demand, it is impossible for the US to find significant alternatives for such a big demand driver,” Matheus Pereira, director of agro-consultancy firm ARC Mercosul, told Platts.

Soybean buyers such as the European Union, Mexico, Egypt, Japan, Indonesia, Taiwan and Thailand, together, buy only around 25% of US soybeans in a marketing year, the USDA exports data released last week showed.

“It is impossible for US soybean to replace the Chinese market,” Terry Reilly, senior commodity analyst at OTC Global Holdings’ Futures International said.

BRAZIL, ARGENTINA BENEFIT

Brazilian soybean has benefited the most from the US-China trade dispute, a recent Chinese customs report showed. In 2018-2019 (July-June), Brazil shipped 65.8 million mt of soybeans to China, up 19% year on year, the report said.

Brazil-origin beans account for 80% of Chinese soy purchases so far in 2019.

With Brazilian soybean inventories expected to decline in the fourth quarter of 2019, China is expected to turn its focus on Argentinian supplies. Argentina, the world’s third largest soybean exporter, is expected to export 7.75 million mt to China in the 2018-2019 marketing year (October-September), up 267% on the year, according to the latest USDA report.

“If the US-China trade tensions continue, we see China buying soybeans exclusively from South America,” JCI China, a Shanghai-based agro-analytics company, told Platts. Simultaneously, US soybeans might sell a fraction of their inventory to Brazil and Argentina [to satisfy their local crushing demands], it added.

China may turn to US soybeans only in an unlikely event of catastrophic weather hitting the South American region, and hampering the soy harvest there, Pereira said.

ROAD AHEAD

The US has been making efforts to find new markets ever since China started to buy more from Brazil, JCI China said.

Replacing China with other developing regions, such as South Asia, may take a few years, Pereira said. For instance, India’s rising middle class is expected to double its purchasing power in four to six years, he said. Soybean consumption is seen as directly proportional to the average income of a country’s middle class.

The US and China are set to meet in Washington in October for yet another round of trade talks.

“US-origin soy may not be excluded entirely by the Chinese consumers, even after the trade tension is over, but there is a huge risk in my opinion that the American beans may become a secondary supplier in the Chinese market, unless there are severe droughts in the South American region,” Pete Meyer, head of Grain and Oilseed Analytics at S&P Global Platts Analytics said.

“And US soybean can’t afford to be a stopgap supplier to China,” Meyer added.

“It takes years and years to cultivate a client and only a few minutes to lose that client,” Meyer said, adding that buyers have long memories.