Key facts
- China's private soybean processors face a supply squeeze in Q4 due to tight Brazilian inventories and U.S. import tariffs.
- Processors are hoping for a reduction in the 10% tariff on U.S. agricultural goods during President Xi's visit to Washington.
- U.S. soybean futures have increased by nearly 12% since June.
- Current prices suggest negative crush margins for U.S. soybeans even without the 10% tariff.
- China's pig herd is projected to shrink in the fourth quarter, impacting feed demand.
China's private soybean processors are facing significant cost pressures and a potential supply shortage in the fourth quarter, exacerbated by tight inventories in Brazil and existing U.S. import tariffs. The industry, already struggling with negative margins and declining feed demand due to a shrinking pig herd, is looking to President Xi Jinping's upcoming visit to Washington for potential relief through a reduction in the 10% tariff on U.S. agricultural goods.
U.S. Trade Representative Jamieson Greer has suggested that some announcements regarding agriculture and non-tariff barriers may be made during the summit, though specifics remain undisclosed. Industry experts note that processors will require access to U.S. soybeans as South America's marketing season concludes, contingent on tariff reductions or state reserve auctions. However, current pricing indicates that even without the 10% tariff, importing U.S. beans for October-January shipment would likely result in negative crush margins.
Benchmark U.S. soybean futures have seen a nearly 12% increase since June, driven by adverse weather, Chinese state buying, and El Niño expectations. While U.S. soybeans are currently priced slightly higher than Brazilian supplies, buyers anticipate the upcoming U.S. harvest to increase availability and potentially lower prices. Brazil's limited capacity to boost fourth-quarter sales to China, coupled with strong domestic demand and a high percentage of its next crop already sold, further constrains supply options. Argentina has increased its soybean supply to China, but this buffer may diminish without continued policy incentives.