Brazil Is Pushing the US Out of World’s Biggest Soybean Market

The world’s soybean market is dominated by one major buyer: China. For years, Brazil has taken an increasingly bigger share of that trade away from the US.

Now, South America’s shippers are even starting to dominate during the typical season lull.

Chinese buyers are snapping up Brazilian soybeans for delivery in October, a time of year when US exports are typically at their peak, according to people familiar with the trades. More deals for the fourth quarter are still likely to be done, according to people, who asked not to be identified because the deals are private.

The sales come as Brazil is reaping a record crop and offering much lower prices than rival producers. They also reflect President Luiz Inacio Lula da Silva’s plan to seek closer ties with China as part of his growth plan for Latin America’s largest economy.

“We still have competitive premiums for at least another month or so,” Thiago Milani, head of trading and origination for 3Tentos, a family-owned agribusiness company in Brazil, said referring to the country’s shipping prices.

American farmers are losing their competitive edge in the global agriculture markets as Brazilian production expands. Geopolitical tensions have also prompted China to seek deeper ties with the South American nation and reduce its historical reliance on the US.

Lula’s plan to deepen relations with China includes getting more funding from the Asian nation and reducing the role of the dollar in foreign trade transactions. A Brazilian delegation’s trip to China earlier this year yielded more than 15 agreements worth about $10 billion in Chinese investment pledges.

It’s currently profitable for Chinese processors to crush Brazilian beans to make cooking oil and animal feed, whereas margins are negative for US supplies, data compiled by Bloomberg show. As a result, Chinese buyers are snapping up Brazilian cargoes earlier in the season.

In fact, purchases were so early that there are already five vessels scheduled to pick up cargoes in Brazil in September, according to Alphamar shipping agency. This is the earliest ever in the season for that kind of trade, shipping data show.

“There’s huge stocks at farms now that will find their way to the ports over the next few months, so we will see more vessels on the lineup soon,” said Arthur Neto, Alphamar’s commercial director.

The purchases also come as US crops, which typically get harvested starting in September, are under pressure from hot, dry weather. In June, the American soy crop was in the worst condition in three decades, before rains returned to the Midwest.

Still, the weather is now set to turn hot and dry again. Soybean futures in Chicago are up more than 5% this quarter to about $14.20 a bushel.

“From the weather point of view, the chance of an improvement in crop conditions isn’t high,” Chinese broker Huatai Futures said in a report on Friday. “The supply of new-season US soybean crop is unlikely to expand greatly.”

Tags: Brazil, soybean, USA