China’s phase one agriculture buying brings out the bulls, but can logistics cope?

Soybean and corn export volumes test port capacity and force competition for finite logistics.

October 13, 2020

By Timothy Worledge

January’s signing of the phase one trade deal between China and the United States marked a major thaw in what had been an increasingly fraught relationship between the world’s two biggest economies.

China’s commitment to buy at least $36.5 billion of US agricultural products through 2021 unlocked a cavalcade of purchases as trade relations improved, with both corn and soybeans in the vanguard.

Records tumbled as the buying kicked into gear, with China in June hoovering up 1.93 million tonnes of US corn in a day, the third biggest single-day corn purchase in history, and steady buying persisted through the summer.

But soybeans have led the way, as China’s demand wrung record-breaking export volumes from Brazil before switching to the US to plug the gap vacated by Brazil as its harvest ran dry.

Underpinned by recovering demand as China emerges from twin pandemics – Covid-19 and the African swine fever outbreak that decimated the country’s pig herds – China has booked 20.5 million tonnes of US soybeans for delivery between September 2020 and August 2021.

That’s 35% of the US Department of Agriculture’s 57.8 million tonnes soybean export forecast – unprecedented forward selling levels for this stage of the year.

And a similar picture is evident in corn, where China has already bought 10 million tonnes of US corn, catapulting the country up the list of world’s biggest corn importers and putting it ahead – to date – of staple US corn buyers like Japan and Mexico.

The buying has supported China cfr delivered soybean prices, which have risen steadily in recent months to hit levels last seen before the outbreak of the trade war, but the dominance of soybeans has also driven physical corn prices higher too.

China ramps up US buying: soybean and corn prices surge, Fastmarkets Agricensus

Port capacity, particularly the sinews of the huge US Gulf complex around New Orleans and the Asia-facing Pacific Northwest, was already facing the strain of a major soybean export campaign but the presence of huge corn export volumes is forcing competition for finite resources.

Corn has had to price high enough to secure space at the berth, forcing prices up even as the US is harvesting one of its largest crops in history in a dynamic that could dent its competitiveness.

Unlike soybeans, where China is the biggest buyer and the market is shared between North and South America, corn competes in a global marketplace that pits southern hemisphere exporting countries like Argentina, Brazil and South Africa against the US and Ukraine in the north.

For Brazil, the world’s largest producer of soybeans, the lure of China’s market drove a record-breaking soybean export program that has drained the country’s stocks and forced prices higher.

But demand hasn’t been the only supportive factor.

Perennial weather worries have washed over Brazil’s upcoming new crop, with dry conditions delaying plantings and threatening to push back what promises to be the country’s biggest ever soybean crop – currently forecast at over 130 million tonnes.

With the two soybean-exporting powerhouses separated by the equator, and opposing seasons, the two rarely go head-to-head for export market share.

But delays to planting and the sheer size of Brazil’s harvest raises the possibility of overlap, a prospect that would see both nations locked in competition for the attentions of the world’s biggest soybean importer, China.

Timothy Worledge will be at Global Grain Geneva, a virtual event on November 17-19, where he will be holding an exclusive interview with Soren Schroder. For more details on the agenda or to register, please visit www.globalgrainevents.com/geneva.