As the soybean harvest in the US approaches, the market is in an unusual position with no US soybean sales on the books to China.
While trade negotiations are opaque, there doesn’t seem to be any promising movement on the US and China reaching a deal regarding soybeans soon, and most Chinese firms continue to book shipments out of South America. This means, even if there is some kind of agreement, the window for US soybeans in China is rapidly closing.
There are many reasons China might manage relatively well without US soybeans this year.
On the export side, Brazil’s soybean shipments to China this calendar year are up 7.9% year on year, reaching 66 million tons as of the August customs data. China’s soybean imports for May, June, July, and August also set records for their respective months.
Food inflation is normally a big concern for the Chinese government. But the August consumer price index fell 0.4% year on year. Declining food prices, down 2.5%, dragged the index lower.
Let’s look more specifically at the protein sector. Hog prices are their lowest of the year, down 30% year on year. The government is stockpiling pork to boost prices and is calling in large hog companies for another meeting in Beijing next week about reducing capacity and shrinking the hog herd.
The egg industry continues to have overcapacity, and prices are down 23% year on year, and milk prices are down 5%.
Poultry prices jumped in August. But large broiler chicken producers, like Wens, still reported prices down 8% year on year, compared to a 25% year on year decline in July.
Futures for Chinese domestic soybeans fell to the lowest level since April today. The crop has had very good growing conditions throughout the season and is likely to set a new production record.
Lastly, China has other trade disputes. It put anti-dumping duties on Canadian canola, effectively pricing it out of the market, even though canola is an important imported protein source for animal feed. China also implemented anti-dumping duties on EU pork and pork offal today.
Adding duties on two major sources of imported protein ahead of the typical US soybean export season seems to indicate that Beijing isn’t particularly worried about going without US soybeans.
China’s government seems relatively comfortable maintaining its current tariffs on US soybeans, and importers are assuming the status quo continues with purchases, albeit more expensive, out of South America.