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Column: U.S. soy sales to China slow, import intentions remain uncertain

FORT COLLINS, Colo. (Reuters) - U.S. soy sales to China this month have cooled from their previously hot pace, raising the question of whether China is simply taking a breather from the U.S. market, or if most of the intended volume has already been purchased and buyers are awaiting Brazil’s new supply.

Soybeans are loaded on a truck after being harvested at a farm in Caaguazu, Paraguay February 17, 2020. REUTERS/Jorge Adorno

China’s appetite for U.S. soybeans has surged in recent months, helping overall U.S. farm trade to the Asian country set new records for the time of year. It has also moved Beijing closer to fulfilling the heavy purchase targets outlined in the Phase 1 trade deal.

Net export sales of U.S. soybeans to China in the week ended Oct. 29 totaled 810,710 tonnes, an 11-week low for the current marketing year. That volume included 578,600 tonnes switched from unknown destinations.

The previous week’s total was also notably lighter than in the several prior weeks. One common theme between the latest two weeks of sales is that there were no daily soybean sales to China confirmed by the U.S. Department of Agriculture.

That means there were fewer large, single sales during that period, and the recent slowdown in Chinese bookings confirms the trend. Sometimes the daily sales are designated to unknown buyers and those can frequently be China, but even those have been sparser in recent weeks.

There has not been a daily U.S. soybean sale explicitly to China since Oct. 15, the longest such streak since April. U.S. soybean prices have risen significantly over the last two months, so that could be a limiting factor.

China to date has booked a record amount of the recent U.S. soybean harvest, but some analysts for varying reasons believe the final volume could still be significantly larger.

With higher prices, huge U.S. sales and shipments to date, and Brazil’s supply coming online in a couple of months, China’s next moves could be a major indicator of its true needs for the oilseed.

CHINESE DEMAND CEILING?

There are unconfirmed ideas in the industry that China plans to stockpile beans, which could allow for limitless purchases from both the United States and Brazil. But under all known assumptions about Chinese demand, the limit suggests a precarious balance between U.S. and Brazil shipments.

China’s need for soybeans and other feed ingredients plunged a couple years ago when African swine fever drastically reduced its hog herd. That was seen potentially curbing soy imports for an extended period, but the rebound has been stronger than previously expected.

USDA pegs China’s 2020-21 soybean imports at a record 100 million tonnes, up from 97.4 million in the prior year. But USDA’s Beijing attache this week maintained its 2020-21 outlook at 95 million tonnes, citing elevated stocks following record imports from Brazil combined with a slightly lower consumption outlook.

Brazil is expecting to harvest a record bean crop beginning in January, and most analysts and agencies are around 133 million tonnes. If a similar percentage of the crop as prior years was to be exported to China, the 2020-21 total might be close to 65 million tonnes.

Based on the USDA import ranges for China, that would leave between 30 million and 35 million tonnes for the United States to export, and that is excluding other smaller suppliers such as Argentina.

Neither of those hypothetical U.S. or Brazilian export numbers to China would be records, though they would be close. However, this simplified exercise demonstrates that off-the-charts exports out of both main suppliers are unlikely unless China’s imports far exceed current expectations.

As of Oct. 29, China had booked 26.8 million tonnes of U.S. beans for shipment in the 2020-21 marketing year. Some 58% of that was purchased prior to Sept. 1, when the marketing year began.

Brazil has exhausted its soybean supply after enormous shipments earlier this year, though current prices for loadings in the few months following its new harvest are much lower than U.S. ones for shipment in the next couple months.

Brazilian farmers have sold more than half of their upcoming soy harvest, much more than usual, expecting record profits. But dry conditions prevented them from sowing the crop as early as they hoped, which could push back harvest by at least a couple of weeks.

That could send some extra Chinese demand to the United States in January, assuming reasonable price disparities. The largest volume of soybeans Brazil has ever shipped to China in January and February was in 2019, at 1.9 million and 4.4 million tonnes, respectively.

The opinions expressed here are those of the author, a market analyst for Reuters.

Editing by Matthew Lewis

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