Swine fever outbreak in China complicates soybean trade with U.S.

Tensions in the oilseed market over the United States-China trade war eased a little last week on word that a Chinese trade negotiating delegation would visit the U.S. this month and reports that cargoes of soybeans delayed off China’s shore were finally being unloaded in port.

But important questions remain:

  • Will China and the Trump administration quickly find compromises to end the trade spat?
  • If not, can China find alternatives to importing large amounts of American soybeans?

This uncertainty has hung over the oilseed market all summer and has helped to depress the price of soybeans, and in turn canola, which is also depressed by the latest U.S. Department of Agriculture forecast of record soybean production.

The Chinese delegation visiting the U.S. comprising low-level officials is positive because at least the two sides are talking, but the gulf between the countries’ positions is wide and bridging them will take major compromises at the top political levels. That seems unlikely at this point.

The U.S. plans to add tariffs on Aug. 23 on another US$16 billion worth of Chinese products, on top of the $34 billion already affected.

So we come back to the question everyone in the trade has been asking since the trade spat began: will China be able to get by without buying new crop American soybeans this fall?

Chinese officials and industry types have been putting on a brave face, talking about seeking a larger percentage of their needs from South America, Russia and even Canada.

But last week, the state-owned importer broke down and paid the 25 percent tariff on two 70,000-tonne cargos that had been anchored off China’s coast for five weeks.

The tariffs came into effect when these ships were still en route to China, leading to the long delay while the buyer decided what to do them them.

It is telling that they did not resell them to another country to avoid the duty.

In the past few months, China did increase the amount of soybeans it bought from Brazil, but we are coming to the point of the year when Brazil traditionally sells out of its supply and buyers turn to new crop American soybeans.

A story in the South China Morning Post, a paper published in Hong Kong, quotes Feng Yonghui, chief analyst from pig farming industry website Soozhu.com as saying China’s hog producers can use other types of protein meal from peanuts, cotton and canola as substitutes for soy meal.

Also, producers could use greater amounts of lysine in the feed formulation and lower the amount of soy meal.

Nevertheless, many analysts still believe China will have to import at least some American beans. The influential oilseed analyst website Oil World believes that even with much meal substitution, China will import 15 million tonnes of U.S. soybeans from October to March, at which time it would be able to start importing new crop Brazilian beans.

It also speculates that Argentina’s huge soybean-crushing industry will buy American soybeans to process and send the meal to China.

This past week though saw a new wild card enter the picture.

There have been two outbreaks in China of African swine fever, which is highly contagious and deadly for pigs. It is spreading rapidly around Europe and Eurasia.

Reuters reports the two outbreaks are the first cases of the disease in east Asia and officials were acting quickly to try to prevent its spread, including closing a major slaughter plant and banning for six weeks all movement of hogs and pork in one region where the disease was found.

Limiting hog disease spread has been a challenge in China.

In 2007 an outbreak of blue ear disease caused a decline in pork production of almost eight percent. That is a huge amount when you consider that China’s hog herd is almost as big as the rest of the world’s herds combined.

If the disease can’t be contained and starts killing many pigs and causing huge culls, the demand for meal and other feed ingredients could be reduced.

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