US economy

El Niño gives warm relief to China’s soyabean importers


Ahead of this month’s G20 talks that could cool the Sino-US trade war, another issue on soyabean traders minds’ is El Niño. the weather phenomenon that is poised to help Chinese importers.

Meteorologists have yet to pronounce the official arrival of El Niño, caused by the warming of the Pacific sea surface. But rains in Brazil linked to the weather pattern have prompted farmers to plant their soyabeans earlier than normal, pushing the timing of harvest and shipments forward by several weeks.

This is good news for Chinese importers, who have refrained from buying soyabeans from the US since the US-China trade war erupted earlier this year. A 25 percentage point increase in import duties on soyabeans have meant Chinese importers looking to source feed have turned to Brazil and other non-US producers including Canada and Russia.

“El Niño is going to help China. Everything looks towards an early harvest [for Brazil] and a sizeable exportable surplus,” said Darren Cooper, senior economist at the International Grains Council.

Crushed soyabeans are an important source of protein for livestock, and Chinese buyers normally start buying the new US soyabean crop in October and November.

But US exports to China this crop year, which started in September, have only totalled 407,000 tonnes as of November 1, sharply down from 10.3m tonnes in the same period last year, according to the US Department of Agriculture.

Apart from the additional tariffs, there is evidence of political pressure in China against importing US soyabeans. A recent report from USDA officials based in Beijing cited JCI, a Chinese consulting group, noting that any intention to sign new US soyabean contracts by Chinese buyers was “sensitive”.

With soyabean flows dwindling before the next Brazilian harvest, “China’s feed industry faces limited supply options”, the report added.

The US-China trade war has changed the flows of soyabeans, as China previously relied on the US for 35 per cent to 40 per cent of its soyabean imports.

In its latest forecasts for the current crop year, the USDA downgraded its soyabean trade figures, reflecting China’s shift to Brazil. With China accounting for just under two-thirds of US soyabean exports, overall US overseas sales were downgraded to 52m tonnes from earlier estimates of 56m, down 3 per cent from a year earlier. Brazilian exports were upgraded to 77m from 75m.

The USDA reduced Chinese imports to 90m tonnes from earlier estimates of 94m, reflecting the cutback in US imports, as well as the Chinese feed industry’s move to lower protein requirement levels in feed for livestock.

There has also been a move by Chinese feed manufacturers to substitute soyabean meal with feed from other sources such as rapeseed and peas from Canada, and sunflower seed from Ukraine, said Agricensus, a price assessment agency.

This has led to agricultural traders including the bosses of Bunge and Archer Daniels Midland to note that China may not have to turn to the US for soyabean imports.

Soren Schroder, chief executive of Bunge, told analysts that China “can probably supply themselves fully without having to return to the US, in case there’s no resolution to the trade situation”.

The trade war has hit US soyabean prices. The futures price in Chicago, which was above $10 a bushel earlier this year, fell as low as $8.10, its lowest level in nine years.

An agreement between the US and Chinese leaders at the G20 summit could signal a return by China as a US soyabean importer, but that is far from a given. Either way, the Brazilian rains are likely to provide Chinese importers with comfort whatever the outcome, as plentiful crops will only help push prices lower, said analysts.

Planting in Mato Grosso and Parana, Brazil’s top soyabean states, are virtually finished, and for the whole country, more than 70 per cent has been planted compared to 57 per cent last year and a five-year average of 57 per cent, according to Michael Cordonnier at Soyabean & Corn Advisor, a US-based consultancy.

“It’s a record pace,” he said, adding that the soyabeans planted early will be ready for harvesting by mid-December and shipped by mid-January.

Weather experts said the forecast boded well for Brazilian soyabean crops. “If things don’t get carried away, we can expect above-normal yields,” said David Streit, meteorologist at weather consultancy Commodity Weather Group in the US.

But if rains continue throughout the growing season, then the risks rise that “rust” caused by fungi will damage the soyabean crops. Mr Streit added: “If you continue in this [rain] pattern you can run into problems. We’re telling our clients it’s something to watch out for.”



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