SINGAPORE/BEIJING (Reuters) - An unexpected drop in short-term Chinese purchases of Brazilian soybeans is denting exports of the oilseed from the South American nation, which just a few weeks ago looked poised to benefit from a Washington-Beijing trade war.
Chinese importers rushed to buy Brazilian beans after Beijing proposed a 25 percent tariff on U.S. cargoes on April 4, but short-term purchases have dried up since last week as the world’s top importer grapples with weak demand at a time of abundant local supply, trade sources said.
“All the panic buying that we saw earlier in April has died down,” said a trader at an international trading firm that runs oilseed processing facilities in China.
“Demand for soymeal is very slow as pig farmers are making losses. Very few deals have been signed since last week for Brazilian soybeans for nearby shipment,” he added. Sources declined to be identified as they were not authorized to speak with media.
China imports more than 60 percent of soybeans traded worldwide, crushing them to make cooking oil and protein-rich animal feed ingredient soymeal.
The premium for Brazilian soybeans, including freight, quoted in China has dropped to $94 a tonne over July Chicago futures compared to a high of $160 touched in April. The premium is typically $50-60 a tonne at this time of year.
Brazil's soybean export basis cools after April tariff-threat spike: reut.rs/2rw56IL
Beijing last month threatened to slap an additional 25 percent tariff on soybean imports and a host of other products from the United States in retaliation for trade actions taken by President Donald Trump.
Brazilian exports have also been hit as European and other Asian buyers have turned to cheaper U.S. supplies.
U.S. soybean exporters boost sales outside China, offsetting trade tiff losses: reut.rs/2ruMHMO
However, the fall in Chinese near-term demand for Brazilian beans is only seen as temporary as prices for cargoes from the South American country are expected to drop as it gathers a record harvest.
The nation is harvesting an all-time high crop of more than 119 million tonnes, boosting expectations of stronger exports, with consultancy Céleres estimating overseas sales will rise by 2 million tonnes in 2018 to 72 million tonnes.
And Chinese buyers have not been shying away from taking June-July shipments, with demand for further months also robust. Importers booked 20 cargoes last week for August shipment, traders said.
Brazil soybean production is projected to be a record 114.9 miln T in 2017/18: reut.rs/2rw5CH0
China will cut its soybean imports for the first time in 15 years in 2018/19, the agriculture ministry forecast on Thursday, with demand for animal feed faltering.
Hog prices in China registered one of the sharpest ever declines in the first quarter and are below average production cost.
“Most soybean plants in China are now overstocked with meal and oil,” said a trader in Beijing.
“The main reason is demand-side. The hog price is not good so feed millers like to pick up cheap stuff hand-to-mouth.”
China’s April soybean imports fell to 6.9 million tonnes, a decline of 13.7 percent from a year ago.
China soybean crushing margins swoon after sharp Brazil sales price rally: reut.rs/2rx9ZSb
Reporting by Naveen Thukral in Singapore and Dominique Patton in Beijing; Additional reporting by Roberto Samora in Sao Paulo; Editing by Joseph Radford