The Asian country recently announced importers can now apply for waivers to import U.S. agricultural goods tariff fees
SAN ANTONIO, Texas — China has taken the first significant step toward opening the door to increased U.S. soybean imports.
Oilseed markets have been waiting for some tangible sign that China is going to live up to its lofty commitments to import vast quantities of U.S. agricultural products.
The first sign may have occurred when China recently announced that importers could apply for tariff waivers to import U.S. agricultural goods, including soybeans, tariff-free.
“(It) is a big deal. We needed to see that happen,” said Jim Sutter, chief executive officer of the U.S. Soybean Export Council.
The two-year, Phase One deal between the United States and China did not include any reductions in import tariffs, so it was unclear how trade between the two countries would escalate.
Sutter said the newly announced waiver system provides a path forward to China increasing its total U.S. agricultural purchases by US$12.5 billion over 2017 levels in 2020 and by $19.5 billion over 2017 levels in 2021.
However, that doesn’t mean boatloads of U.S. soybeans will instantaneously start heading to China.
The country typically imports Brazilian soybeans at this time of year and then switches to U.S. product in August and September.
It is anybody’s guess what volume of U.S. soybeans China will import this year.
Bryce Knorr, senior grain market analyst with Farm Futures magazine, told delegates attending a markets session at the 2020 Commodity Classic that it could be as much as 42 million tonnes.
Sutter said that sounds about right.
“Our team on the ground in China was estimating 40 million tonnes, so similar ballpark,” he said.
That would be a vast improvement from the 20 million tonnes of U.S. soybeans China imported last year and the 12 million tonnes it bought in 2018, the year the trade war erupted.
Arlan Suderman, chief commodities economist with INTL FCStone, said an export program to China of 40 to 42 million tonnes won’t be enough to prompt a big price rally.
“Soybeans will continue to struggle,” he said.
He agreed with Sutter that not much trade will happen until fall because Brazilian soybeans are about 50 cents per bushel cheaper than U.S. soybeans, largely because the Brazilian real is record cheap compared to the U.S. dollar.
“With the currency rates the way they are, we’re not going to be competitive until Brazil runs out of supplies,” said Suderman.
He said the non-China business that was once flocking to the U.S. is now booking as much as it can from Brazil, which is the world’s cheapest source of soybeans.
That is why there is still going to be a glut of U.S. soybeans at the end of 2020-21 despite the increased business to China. It doesn’t help that one-third of the world’s hog herd has been lost to African swine fever.
The one thing that could boost soybean prices is a smaller U.S. crop. Most industry pundits are forecasting 85 to 86 million acres, but Farm Futures surprised the market with an online survey-based estimate of 81 million acres.
That would have a positive impact on prices if it came true, said Suderman.