Despite what Chinese government officials say, most market analysts and traders believe China will need to buy soybeans from the U.S. this year, even if it means paying a 25 per cent tariff.
“The question is not whether China is eventually going to have to buy U.S. soybeans. I think we all agree they have to, especially in the short term,” says Pedro Dejneka of MD Commodities in the interview below, on the phone from his hometown in southern Brazil.
A Rabobank report published last week estimated China will still buy around 15 million tonnes of U.S. soybeans this year — down from 32.9 million last year — simply because there isn’t enough supply available elsewhere.
How much and when China buys U.S. beans this year are to be determined, but the more important question for North American oilseed producers and the global soybean market: how many soybeans will China buy from the U.S. in three, five or ten years?
The current trade war is looking like a turning point in the history of world soybean trade, says Dejneka, who splits his time between Chicago and Brazil.
We’ve often heard the line in recent years about China buying one out of every four rows of soybeans in the U.S. (it’s actually moved closer to one out of every three), but that market at risk, with China looking to source more soybeans and alternatives to soybeans elsewhere — places like Brazil, across the border in eastern Russia, and potentially more domestic production in China.
“The only thing that could save this structural change from happening as far as the soybean market is concerned and the United States’ role would be a major deal between the U.S. and China,” says Dejneka, who splits his time between Chicago and Brazil.
While Brazilian soybeans are trading at a significant premium to U.S. beans (despite ample supplies and a poor performing currency), Dejneka is skeptical about recent reports of Brazilian orders for U.S. beans.
“That’s people looking for something to talk about,” he says. “Could a cargo or two or three work there way down here? Yes, but that is not something we should be talking about because it’s going to be a one-off if it happens. Those are stories people are trying to come up with to spark some life into this market, but it’s far from reality at this point.”
On the other hand, he says reports of Chinese investment in Brazilian soybean production are based on reality.
“It’s huge. Huge. There’s a huge amount of investment and interest. Brazil still has a lot of land they can put into production. We’re going to have a jump of another two to three percent, potentially more, this coming season.”
Listen to Pedro Dejneka share a Brazilian perspective on what’s happening in the soybean market, the lingering impact of the country’s trucker strike, and the long term impact of the U.S.-China trade war (originally heard on RealAg Radio):