China’s Appetite for Soybeans is Complex

09:48AM Feb 25, 2019
Annual Percentage Change in U.S. Soybean Exports
Annual Percentage Change in U.S. Soybean Exports (First 21 weeks of the marketing year)
( Source: USDA Federal Grain Inspection Service, Farm Bureau Calculations; Illustration: Lindsey Benne )

During President Donald Trump’s latest round of trade talks with China’s Vice Premier Liu He in the Oval Office, a simple handshake caused quite the stir. As the two grasped hands, the vice premier was overheard saying China would commit to buying 5 million metric tons (mmt) of soybeans a day from the U.S., a statement that caused Trump to perk up. However, the comment was lost in translation, and the White House later clarified China committed to a one-time purchase of 5 mmt of soybeans. While the big sale isn’t on the books yet and commodity markets so far seem unimpressed by the buys, China continues to purchase at least some U.S. soybeans.

“I don’t think soybeans are the big sticking point in trade talks,” says Ken Smithmier, director of research, agricultural markets for ClipperData. “In my opinion, these appear to be statements from China to buy them time in the trade negotiation and make U.S. officials happy. For those of us in the grain market, running the numbers and knowing how much they typically buy every year, it really doesn’t amount to a whole lot.”

ClipperData logs vessels loaded with agricultural and energy products, including when cargo leaves and where those vessels arrive.

“In January 2019, 19 vessels with a total of 1.3 mmt of soybeans loaded out of the U.S. en route to China,” Smithmier says. “That compares with 48 vessels and 2.79 mmt the same month in 2018.”

If China would buy the 10 mmt figure that’s being thrown around (a 5 mmt pledge on Dec. 1 and the second 5 mmt in early February) it would help eat away at the hefty carryout situation, Smithmier says.

“When you look at 10 mmt that’s just shy of 400 million bushels,” he explains. “If China were to actually follow through with purchasing 10 mmt, USDA might keep the export forecast unchanged or even improve it some, which could eventually draw down the carryout slightly.”

China needs to start importing U.S. soybeans on a regular basis to make up for lost ground, says Brian Splitt, who recently started an ag marketing firm with two other veteran analysts called AgMarket.Net.

“China needs to import just over 1.6 mmt per week to hit their stated target for the marketing year,” Splitt says. “However, per ClipperData, actual total Chinese offtake from the beginning of October 2018 through January was just over 20.36 mmt; the number should be closer to 29 mmt to stay on pace.”

Seasonality is a factor now, Smithmier adds, with Brazil’s harvest an option to supply China’s needs.

“The daily loadout rate in Brazil exploded in early February—almost reaching 1 mmt after riding below 200,000 metric tons for most of January,” Smithmier explains.  

China’s appetite for soybeans from around the globe has slowed compared with a year ago. Is the fading demand a factor of the trade war? Or, has the more than 100 cases of African swine fever in 23 provinces played a role? Smithmier says we’ll know the answer in a few months.

“Some believe it’s China using their domestic stocks, and they’re going to have to reload on those inventories come this spring, which that opinion is one I share,” he adds.

The answer will come this spring, when Brazil’s soybeans are harvested and China’s demand typically picks up.

If China isn’t buying from Brazil, Smithmier fears Brazil could start exporting to the European Union (EU) and southeast Asia, areas that have been buying from the U.S. recently.

“Brazil is going to be looking to move beyond Southeast Asia to the EU to buy,” Smithmier says. “It’s really going to depend on if China is in fact going to buy at a level we deem strong. So far this year, the signs aren’t there that everything’s OK.”

If demand is an issue in China and Brazil starts exporting to other countries currently buying from the U.S., that could add to the already burdensome U.S. soybean balance sheet.

“Trimming down the U.S. balance sheet could happen several ways. One of which is we don’t plant as much this spring, and the other is creating new demand,” Smithmier says. “We’re doing that with the EU and Southeast Asia, but they’re not China.”

As U.S. farmers head to the fields, Smithmier says to keep in mind there’s likely 5 mmt of “fluff” in the Chinese soybean import number. If that’s true, the 5 mmt could be added back into the world ending stocks number, which would further pressure soybean prices. 

China’s Appetite for Soybeans is Complex