China to look beyond Brazil to Argentina for soy, as trade war rages

China probably can’t count on Brazil alone to fulfill its soybean needs as the Asian country snubs US supplies amid the year-long trade war – and opportunity may arise for Argentina.

When Donald Trump kicked off the tit-for-tat tariff battle last year, Brazil had just finished collecting a bumper crop, allowing the world’s biggest soy exporter to almost exclusively meet China’s voracious demand. But after shipping record volumes and a growing season that saw weather problems, Brazilian inventories are now dwindling and the next harvest is still months away.

That could create a problem for China, the top soy consumer. After Trump escalated the trade spat last week, the Asian nation halted its purchases of US farm goods. That leaves few alternatives to Brazil. Argentina may be one option, but farmers there are currently hoarding beans amid upcoming elections.

There’s already evidence of a supply squeeze. Brazil’s soybean stockpiles are down about 80% from this time last year, and the country’s exports fell eight percent through July, while cargoes to China dropped 11 percent. Price premiums for shipments from the country are on the rise.

Starting from September, Brazil will only have about 15.7 million metric tons of soy left to ship until crop gathering starts in January, according to Daniele Siqueira, an analyst at AgRural consultancy firm. The forecast is based on total available supply, shipment data through July and what’s needed for domestic consumption.

That number would fall short of China’s typical demand in the period. The country imported about seven million tons per month from October through December in the past three years, on average, Vinicius Ito, derivatives vice president at R.J. O’Brien and Associates LLC, said, citing official Chinese data.

Prices in Brazil are already climbing amid the outlook for tight supplies. The premium paid for soy shipments in September is up about 32 percent this month. That’s as benchmark futures traded in Chicago fell 1.7 percent.

"Premiums must be adjusted as there’s only Brazil in the game at the moment," Ito said in a telephone interview from New York.

Premiums are still well below records reached last year. That’s because China’s demand has tapered off a bit. The spread of African swine fever in the country is decimating the country’s hog herd, decreasing the need for soybeans in livestock feed.

Meanwhile, the pig disease has raised expectations that China’s meat imports will continue to increase to fill the supply gap. That’s prompting Brazil’s protein producers to raise output and could end up meaning more soy is used domestically, leaving less for export.