Analyst says possible Chinese soybean tariffs not a 'calamity'

14.05.2018

While the threat of China imposing a 25% tariff on U.S. soybeans isn’t great news for U.S. exporters, it’s not a disaster and lessens the reliance on a single market, according to an analyst with the U.S. Soybean Export Council (USSEC).

“We don’t want to see the tariff go into effect because we want access to all markets,” said John Baize, USSEC analyst and president of John C. Baize and Associates. “While it would be negative, it wouldn’t be in any way a calamity.”

China has threatened to impose a 25% tariff on imports of some U.S. commodities, including soybeans, in retaliation for U.S. proposed tariffs on $50 billion worth of Chinese imports.

There have been minor cancellations of soybean contracts amounting to about 100,000 tonnes since China added soybeans to its list of retaliatory sanctions, Baize said. For the week ended April 26, one cargo destined for China was redirected to Vietnam.

But the U.S. has also picked up some orders, including to Argentina in the new marketing year that starts Sept. 1. That nation has seen considerable crop damage, tightening up overall soybean supplies.

 “We’re picking up business,” Baize said. “I don’t think it’s a serious problem at all, unless it happens for multiple years. That would incentivize more soybean production in South America.”

It is reasonable to speculate that down the road the U.S.’s share of the Chinese market is probably going to be smaller, he said. Chinese buyers will not want to run the risk of this happening again.

“If the end result is we keep selling the soybeans we need to sell, and China is a smaller share of our exports, that’s not all bad,” Baize said.

Last year, 61% of U.S. soybean exports went to China. That makes the U.S. vulnerable and dependent on a nation that hasn’t always played fair, he said.

“I’d like to see us spread out in more markets,” Baize said.

Baize believes there are enough other markets to absorb what would have gone to China. Plus, looking at the volume of soybeans China needs, it will likely still need to import from the U.S.

China will need 100 million tonnes of soybeans. Brazil can provide 73 million tonnes, leaving 27 million tonnes, Baize said. Even if China imports 10 million tonnes from elsewhere, which will be difficult given the drought situation in Argentina, there will still be a need to import from the U.S.

“We would have that plus all the other business, about 54 million tonnes of imports of soybeans by countries other than China,” he said. “We’ll be close to where our exports are today, and it might even be slightly better.”

This is traditionally a slow time for exports to China, Baize said. About 91% of soybeans to China are exported in the first seven months of the marketing year.

There are about the same amount of soybeans sold to date this year as there was a year ago, he said. But, it’s unlikely there will be many additional sales to China out of the U.S. for future shipment.

“No one wants to have a ship in the ocean if the tariff goes into effect,” Baize said.

In the meantime, China is employing what Baize called “bullying” tactics, stepping up inspections and delaying shipments for weeks.

“They’re trying to send a signal, ‘don’t mess with us,’” he said. “They should be careful; those kind of tactics can backfire. It can really upset the other side.

“Hopefully we can start down the road to negotiations.”

A U.S. trade delegation was in China last week, but not much progress was made in resolving the dispute. A group from China is expected to visit the U.S. next week.

Soybean growers have expressed their concerns but understand the administration’s hardline stance is due to the trade deficit with China and the nation’s loose interpretation of the WTO, Baize said.

“There’s not much more industry can do. We have expressed our views, and now it’s in the administration’s court and the Chinese’s court,” Baize said. “Trade is doing everything it can to set itself up for the least amount of risk for whatever happens. We’ll just have to see what time brings.”

The U.S. sorghum industry is also searching for new markets after China slapped a 178.6% preliminary anti-dumping deposit on U.S. sorghum on April 18.

About 30 ships were on the water headed to China with U.S. sorghum when the duty went into effect, said Tom Sleight, president and chief executive officer of the U.S. Grains Council (USGC).

The council and merchandisers had to quickly find homes for those cargoes, Sleight said. All but four or five ships have found a place to go.

“We were able to find markets in Saudi Arabia and Spain,” he said, but at discounted prices.

China’s Commerce Ministry said the deposits are temporary during the government’s ongoing anti-dumping investigation. No timeline was given for a final ruling on the matter.

Chinese importers are also feeling the pinch, Sleight said, because they had contracted for the grain and were counting on the deliveries.

The new sorghum crop will be harvested in the next four to six weeks, adding additional urgency to the situation.

“That crop needs a home,” Sleight said. “We’re working hard to get this grain sold. We’ve instructed our staff to double and redouble their efforts to find new markets.”

China was the top destination for U.S. sorghum exports in 2016-17 at 4.8 million tonnes. The nation accounts for about 70% of sorghum exports.

“For years we’ve been looking at diversifying the export market,” Sleight said.

USGC is working with Japan, Korea and Mexico to increase their sorghum imports, as well as Colombia, where it can be used to produce advanced biofuels.

Sleight said he is hopeful China and the U.S. can resolve the trade dispute but hoping for a quick solution may be overly optimistic.

“Our policy is to hope for the best but prepare for the worst,” Sleight said. “We will continue our efforts for alternative markets, albeit it at lower prices.

“China has been a unique market in that it has been willing to pay a premium for U.S. sorghum. We lose that edge now,” he said.


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