China keeps defying predictions that it would run out of soybeans


By Karen Braun

CHICAGO, Nov 21 (Reuters) - When the U.S.-China trade dispute escalated earlier this year, most market participants assumed China could never completely cut U.S. soybeans out of its import program due to the sheer volume it consumes.

However, the U.S. soybean season has reached its typical peak export week and Chinese buyers are still nowhere in sight, worrying analysts that China may have pulled off the impossible.

China has been the driving force behind the global soybean market for more than a decade, accounting for nearly one-third of total consumption. But ever since Beijing slapped tariffs on soybeans from the United States, the world's No. 2 exporter, that trade relationship has virtually halted.

Since the end of July, less than half a million tonnes of U.S. soybeans have sailed to mainland China, according to port inspection data from the U.S. Department of Agriculture. For comparison, nearly 18 million tonnes of U.S. beans were sent to China between August and November 2017.

Luckily for China, top exporter Brazil harvested a record soybean crop earlier this year and despite warnings that the South American country would run out of soybeans toward the end of 2018, exports have continued at record pace.

Through the first half of November, Brazil had exported 2.6 million tonnes of soybeans, which already surpasses last year's full-month record of 2.14 million tonnes. This follows the 5.35 million shipped in October, and that was more than double the previous record volume for the month. (https://tmsnrt.rs/2QYHx6n)

At some point within the last couple of years, it started to seem like Chinese soybean demand was invincible and would expand comfortably each year. But perhaps we are being reminded that this demand is subject to the same market forces that all commodities encounter: price.

The most actively traded soybean meal contract on China'sDalian Commodity Exchange had risen 20 percent from the start of the year to early October. They have eased about 10 percent since then, but January futures are still at a five-year high for this date, which is curbing demand.

The Asian country uses a great deal of soybean meal to feed the world's largest hog herd, but the government announced new guidelines last month lowering the protein content of animal feed. This was another strategy China was expected to deploy to ultimately reduce the demand for soybeans, but the higher soy and meal costs have been seen as more prohibitive thus far.


Knowing that Brazil typically burns through its entire soybean supply each year, market watchers have been patiently waiting for that moment when China is caught empty-handed.

In a typical year, China heavily relies on the United States between October and January. But midway through November, the Asian country has a measly 714,000 tonnes (and shrinking) of U.S. soybean sales on the books.

According to industry portal Cofeed, China's port stocks totaled 7.5 million tonnes as of Nov. 11, some 33 percent more than a year ago, but down from mid-October's 9 million-tonne record. With China's predicted rate of consumption, these reserves would last less than four weeks. (https://tmsnrt.rs/2QYk5pT)

But China also presumably has some volume of soybeans in its state reserves, and USDA estimates this stockpile could be as large as 8 million tonnes. That would mean between the state and port stocks, China has less than eight weeks of supply on hand, assuming a steady rate of usage.

This may seem like an alarmingly low supply, but given how quickly Brazil's monster crop may be available early next year, it may actually suffice. And if it does, then China somehow made it through the critical period of low South American product without importing U.S. soybeans.

Brazil's impending crop is certainly a force to be reckoned with. Planting is complete in the top producing state of Mato Grosso, and that effort proceeded at a record pace about 10 points ahead of the previous quickest campaign in late 2016.

The No. 2 state of Paraná was 95 percent finished with planting as of Monday, and that is tied with last year's record-fast effort.

In early 2017, Mato Grosso's soybeans were 20 percent harvested before the end of January and reached the halfway mark by mid-February. This means that Brazil's new supply of soybeans should be available for export beginning in just two months.

This article appears in: Stocks , Politics

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