China's nod to state-owned companies to start buying US soyabeans again to help placate its top trading partner may turn into a test of Beijing's will over market forces. A buying spree right now would be painful for well-stocked Chinese soyabean end-users and traders, according to interviews with five executives at major trading houses and processors, particularly as US beans are more expensive than supplies from rival Brazil.
US export prices have pushed even higher this week as sellers have bet on a bonanza, but Chinese crushers already face razor thin margins to turn beans into animal feed or cooking oil. Meanwhile, state-owned COFCO and other big traders have built up big stocks of Brazilian beans in anticipation of a trade war, leaving them little room to take in much more, according to a source at COFCO and traders.
"Government's guidance or not, it doesn't really matter. Business is business," said a manager at a medium-sized crusher in northern China, which has sufficient supplies for its factory through June. "A crusher won't buy beans if it's not profitable." Brazilian beans are about $15 per tonne cheaper than American ones.
"If China really steps up buying US soyabeans, it won't be good news for the domestic market," said Zhang Yun, analyst with industry portal cofeed.com, pointing to high imports, mountains of meal and narrowing crush margins. China's soyameal inventory stands at 1.15 million tonnes, near its highest in nine months, while soyabean stockpiles have jumped by 25 percent since mid-April to 7.01 million tonnes, their highest since September.
Soyabean imports edged up 0.2 percent in the first quarter to 19.6 million tonnes, with arrivals from Brazil more than doubling while US shipments fell.
QUIET RETURN The renewed interest in US grains comes after Beijing pledged at the weekend to increase imports to avert a trade war that could damage the global economy.
China gobbles up about 60 percent of globally traded soyabeans, which are America's top agricultural export to the country, worth an estimated $13 billion last year. China's Ministry of Commerce told Reuters it had not issued instructions to state-owned companies to step up purchases of US soyabeans.
But state-owned stockpiler Sinograin made enquiries for US beans this week for the first time since early April, a move that market participants interpreted as a sign that government curbs on buying American goods had been lifted. Restrictions preventing COFCO from buying US soyabeans have also been removed, sources familiar with the matter said.
Sinograin and COFCO did not respond to requests for comment. But the US Department of Agriculture (USDA) on Friday said private exporters sold 312,000 tonnes of US soyabeans to China for shipment in the marketing year that begins September 1 - the first significant sales since early April, when trade tensions between Washington and Beijing began to escalate.
The USDA on Friday also said exporters sold 165,000 tonnes of optional-origin soyabeans to China.
The United States sold 264,000 tonnes of new-crop soyabeans to an undisclosed destination, data on Thursday showed, which traders said was likely China. Reuters could not immediately confirm this. Some analysts said logistics problems in South America, including a truckers' strike that paralyzed Brazil transport this week, may steer Chinese buyers back to US soyabeans.
"The issue with Brazil and Argentina is they have proven not to be dependable suppliers. It points to the need to diversify your supply lines. I think that is why they (China) are coming back to buy US," said Roy Huckabay with Linn & Associates, a Chicago brokerage.
STRATEGIC STOCKPILE
It is not clear how much China may buy, but the United States is expected to have about 14 million tonnes of beans left over this year after expected sales, worth about $6 billion - an indication of what may be available. In 2018-19, the surplus is estimated to be 11 million tonnes, worth $4.5 billion. The market has speculated the government may be preparing to replenish its state reserves.
Crushers worry that any extra buying will boost prices and further erode margins as demand dwindles from the animal feed industry. Pig farmers, the top users of meal, are bleeding cash and struggling with sinking hog prices amid a burgeoning glut. Bids for US Gulf Coast exports rose this week on demand from exporters for old- and new-crop shipments, with activity picking up as trade tensions eased, traders said.
Higher prices are particularly painful for crushers in the south where a manager at a large crusher said firms are bleeding about 20-30 yuan ($3.13-$4.70) for every tonne of beans they crush due to huge imports and weaker demand. "Some crushers in the south have already started delaying cargoes to reduce pressure on stocks," he said.