Analyst: China’s interest in U.S. soybeans likely diminished forever

The United States-China trade war has done irreparable damage to the soybean industry, says a market analyst.

“We will never get back to our previous levels of Chinese buying,” said Rich Nelson, chief strategist with Allendale Inc.

He believes the U.S. will ship about 14 million tonnes of soybeans to China in 2018-19, down from the pre-trade war levels of 30 to 35 million tonnes.

In the future, he thinks exports will fall to around 10 million tonnes per year until a trade agreement is negotiated.

Even if an agreement is reached, the days of a 30 to 35 million tonne export program to China are gone, he said.

In the meantime, China continues to cozy up to Brazil, its primary supplier of soybeans.

Johnny Chi, chair of COFCO International, China’s largest grains and oilseeds company, recently told participants attending the 2019 Brazilian Agribusiness Congress that he expects a strengthening of Brazil-China relations in the coming years.

“From COFCO’s point of view, the long-term relationship between our countries and our businesses looks very solid,” he said, according to a transcript of his remarks on the COFCO website.

COFCO has already invested heavily in Brazil. It owns sugar cane mills and other assets in the country and 7,500 of its 11,000 global employees are based in Brazil.

The company exported 13 million tonnes of grains and oilseeds out of Brazil in 2018.

Chi said COFCO is a “large and enthusiastic” buyer of Brazilian soybeans and is eager to expand that relationship by buying five percent more soybeans per year for the next five years.

The company has invested in storage, processing and ports in Brazil and intends to increase its infrastructure investment in the coming years by putting more money into transportation logistics and new silos.

Chi also pledged to establish a financing program to help Brazilian farmers expand soy production on up to 60 million acres of degraded land.

“We can all produce more, better and longer,” he said.

Nelson said Chi’s announcement had no effect on U.S. soybean prices because the market has already largely written off sales to China.

“It is certainly a concern and yet another headline adding to an already bearish situation,” he said.

He believes headlines like that are simply going to reinforce decisions American farmers are already making, which is to cut back on soy planting.

Growers seeded 76.7 million acres of the crop in 2019, according to the U.S. Department of Agriculture. That is 12.5 million acres less than the previous year.

He expects the same trend to continue in 2020 as the market attempts to get supply more in line with demand.

Nelson thinks a similar scenario will have to play out in Canada with canola as Canadian growers respond to vastly reduced Chinese demand for their product.

“We do need to cut acres out of all North American oilseed products,” he said.

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