China seen not fulfilling Phase 1 deal despite potential, large Q4 US soybean imports: Platts Analytics

China is expected to buy large volumes of US soybeans in the fourth quarter, but is projected to fall short of Phase 1 trade deal targets, S&P Global Platts head of grain and oilseed analytics, Pete Meyer, said.

Chinese crushers normally turn to US soybeans in Q4, after the US soybean harvest starts in September, while the Brazilian soybean new crop sowing is beginning.

Under the US-China Phase 1 trade deal, signed on January 15, China has committed to purchase $200 billion worth of US goods within two years, including agricultural products valued at $80 billion.

Soybeans have been the primary US agricultural export to China in recent years, accounting for over 60% of total farm shipment to Chinese ports.

China has been aggressively buying US corn, wheat and sorghum in recent weeks, but soybean purchases, which usually generate higher receipts, remain less than expected.

Based on China’s monthly soybean import trend so far in 2020, China is well behind its Phase 1 commitments, Meyer said.

According to market sources, China needs to import over 43 million mt of soybeans in 2020 to fulfil its trade commitments. But, it only bought 9 million mt of US beans between January and May, while bean imports from Brazil were over 22 million mt, the latest customs report showed.

Typically, the Brazilian soybean harvest and sales transpire between February and July, while the US soybeans sales peak during the second half of a calendar year.

Most market analysts expect that in the latter half of 2020, at least a portion of China’s soybean purchases will be diverted away from Brazil and toward the US to meet the Phase 1 commitments, the US Department of Agriculture said in its attache report.

Helped by a weaker currency, Brazilian soybean farmers have managed to market over 88% of their old crop stock by June 15, which is up 20 percentage points year on year, market analysts said.

With Brazilian soybean stocks rapidly depleting, China may have to turn to US soybeans in Q4, Meyer said. “However, I don’t expect China’s purchase of US soybeans to be sufficient in fulfilling the Phase 1 deal obligations.”
ASF in China

According to Chinese agricultural commodity traders, there have been small outbreaks of African swine fever and precautionary hog culling in Hubei and neighboring provinces recently.

The reports of ASF-related culling in China remained a concern, Meyer said. But, eventually China was expected to recover from the epidemic’s impact by the end of 2020, as the country has been very swift in culling the infected sections of the pig population in recent months, he added.

The epidemic, which is fatal to pigs, started in August 2018 in China and by the end of 2019, over 250 million pigs were preventively culled, market sources said. As a result, demand for animal feed plummeted, leading to sharp drop in raw soybean imports, which is primarily used as an animal feed ingredient.

According to Chinese agriculture ministry, the hog numbers continued to fall in Q1, signaling the continuing strong impact of ASF. China’s Q1 live hog slaughter was 131.29 million head, down 30% year on year, the ministry data showed.

A recovery in China’s hog slaughter numbers can be expected in 2021, a local Chinese analyst said.

As its livestock sector works to rebuild hog and sow herds decimated by ASF, China, the world’s largest soybean importer, is expected to purchase 96 million mt in the 2020-21 marketing year (October–September), up 17% on 2018-19, when the epidemic impact was at its peak, the USDA said in its attache report.
Vicentin spat

While Argentine soybean farmers were still grappling with high taxes and growing supply bottlenecks, the government decided to takeover world’s largest soy crushing firm, Vicentin, on June 8.

This decision to acquire this debt-laden crusher has riled private crushing industry participants in Argentina, who have been protesting on the streets ever since.

The bigger issue in Argentina, apart from high tax rate on agricultural exports, is the uncertainty surrounding its crushing industry because of the nationalization spat, Meyer said. Private crushers are concerned about their future.

Market participants doubt the Argentine government’s ability to rescue Vicentin, given the fact that the country’s economy is itself has been in recession for the last few years.

Argentina’s economy is forecast to shrink 9%-10% in 2020 due to an unsustainable buildup of debt and high inflation over the years, an analyst said.
Source: Platts