Column: China Still Dominates U.S. Soybean Exports Despite Trade War

(Reuters) – Even with an ongoing trade war, China was the top destination for U.S. soybeans during the first half of the current marketing year, and the Asian country will help determine whether American beans can meet the U.S. government’s full-year export targets.

Data published by the U.S. Census Bureau on Wednesday showed that the United States exported 4.58 million tonnes of soybeans in February, the largest volume for the month in three years. Some 46 percent of those shipments were to China, the largest monthly share in a year.

Those February soybean export figures are relatively normal for the month, but the previous months were far from it. In the first half of 2018-19 that began on Sept. 1, just 14 percent of total U.S. bean exports went to China compared with 65 percent in the first half of 2017-18.

But China was still the top destination for U.S. soy shipments between September and February with a total of 3.94 million tonnes. That is down 85 percent on the year but comfortably ahead of No. 2 Mexico with 2.52 million tonnes. This demonstrates the overwhelming importance of China in U.S. soybean trade.

Argentina was third with 2.05 million tonnes and the Netherlands and Spain round out the top five with just under 2 million apiece. First-half shipments to all European Union countries totaled 6.2 million tonnes, up 132 percent on the year.

NOT THERE YET

Through April 4, U.S. soybean commitments for 2018-19 totaled 43.9 million tonnes, meaning that 7.1 million tonnes were yet to be sold to reach the U.S. Department of Agriculture’s full-year export target of 51 million.

Under normal circumstances, those forward sales would be next to impossible in a year like this one where South American soybean harvests are strong. Last year, U.S. sales reached 5.8 million tonnes between early April and August, and 5 million were sold within the same period in 2017.

But the U.S.-China trade war and Beijing’s 25 percent tariff on imports of the U.S. oilseed have created a far from normal scenario in 2018-19. Trade tensions have cooled off since last year as the two sides continue to negotiate, and that has come with some Chinese pledges to purchase U.S. soybeans.

On average, about 91 percent of China’s annual purchases of U.S. soybeans are shipped in the first half of the marketing year, and that volume accounts for about 52 percent of the United States’ total yearly soybean exports.

But this year, only 30 percent of China’s total U.S. soybean commitments of 12.9 million tonnes were shipped in the first half due to the lack of buying in the earlier months.

MORE HURDLES

Taking official export statistics through February and considering weekly export inspections through April 11, the United States would need to ship around 18.7 million tonnes of soybeans in the remaining 20 weeks of 2018-19 to meet USDA’s target.

Assuming the necessary sales are made, inspections – which are a proxy for actual shipments – must average around 920,000 tonnes per week through August. That would be record pace but not unreasonable given China’s irregular buying pattern this year.

But more Chinese buying might be the only hope for U.S. shippers to meet the full-year goal of 1.875 billion bushels, some 12 percent smaller than last year. Non-Chinese buyers have been significantly slowing their purchases in recent weeks.

Between Feb. 15 and April 4, China has accounted for a disproportionately large amount of U.S. soybean sales, some 77 percent. Sales to all other countries totaled just 1.6 million tonnes, the smallest for that period in four years.

Many non-China buyers loaded up on U.S. soybeans when they were super cheap relative to their South American counterparts last year after the trade war broke out, but now Argentina and Brazil prices are very competitive.

The trade war is not the only abnormal factor in Chinese demand for U.S. soybeans this year. The deadly outbreak of African swine fever, or ASF, that began last August is seen slashing pork production by anywhere from 20 to 30 percent this year.

Without the ASF problems, the United States could probably squeak the necessary soybean sales out of China over the next four months if the trade talks lead to a deal sometime soon. And the outlook for U.S. soybean exports to China beyond 2018-19 would likely be better.

But U.S. soybean purchases by the Chinese now are almost positively goodwill purchases headed straight for reserves. Poor feed demand in China due to smaller hog herds is also impacting top soybean exporter Brazil, which may end April with the lowest soy export total for the month in four years.

It could be argued that China’s struggles with ASF are now a bigger threat to the future of U.S. soybean exports than the trade war, at least for the next year or so. Increased sales to other countries certainly help, but they do not come anywhere close to filling the void left by China.