China’s demand for Brazilian soybeans is growing due to trade disputes with the US

Currently, soybean premiums at the Port of Santos (São Paulo) stand at 65 cents per bushel for April shipments and 75 cents for May shipments. This reflects China’s need to secure supplies, according to Ronaldo Fernandes, an analyst at Royal Rural.

“China has announced changes to its customs policies, but it is paying a price for this decision. Previously, it took seven to ten days for soybeans to reach processing plants; now it takes up to 20 days,” Mr. Fernandes said. “The local market is undersupplied, with low soybean meal stocks, and Brazil is the only supplier capable of meeting this demand.”

According to Mr. Fernandes, Sinograin, China’s state-owned grain storage company, still holds relatively comfortable reserves. However, the new customs policy could spark a rush for soybeans among Chinese buyers, leading to significant drawdowns in local inventories.

The soybean export premium is the difference between the physical commodity price at a given location and its price on the Chicago Board of Trade (CBOT). Various factors influence this premium, including domestic supply and demand, exchange rates, and logistical and port conditions. Fluctuations in these elements determine whether the premium is positive (indicating a price increase) or negative (indicating a discount).

The export premium is either added to or deducted from the futures contract price before converting the value from dollars per bushel to reais per bag. When demand for Brazilian soybeans rises due to external factors—such as trade disputes between China and the U.S.—premiums at ports tend to increase. The market closely tracks these fluctuations, as the premium is a key component in Brazil’s soybean pricing structure.

João Birkhan, president of Sin Consult, noted that Brazilian soybean premiums were already positive before the current trade war. However, after China imposed a 10% tariff on U.S. soybeans in response to U.S. tariffs on Chinese goods, the trend gained further momentum.

“The Chinese now have to source from Brazil to replace the supply they would have received from the U.S. We are going to sell more soybeans, and premiums should remain between 65 and 75 cents for the remainder of this season,” Mr. Birkhan projected.

Daniele Siqueira, an analyst at AgRural, said that under normal circumstances, Brazilian export premiums would decline at this time of year, particularly with a record harvest expected. “With the Chinese tariff on U.S. soybeans and pressure on CBOT prices, the trend is for premiums to remain strong despite Brazil’s ongoing harvest. However, we do not expect premiums to rise as sharply as they did in 2018 during the first trade war,” she said.