China Tariffs Driving U.S. Soybean Exports To the European Union to a 30-Year High
U.S. soybean sales and shipments to the European Union (EU) have risen since April 2018, 2 months prior to the imposition of duties on U.S. soybeans by China. With premiums for Brazilian soybeans and with tight supplies in Argentina and Uruguay due to drought, EU buyers turned to the United States as the most economical and readily available source for soybeans. Using a 12-month moving total based on data obtained from the FAS export sales reports, soybean exports to the EU are over 9.0 million tons ending February. This is roughly double the amount exported through the end of February 2018. The last time 12-month exports of U.S. soybeans to the EU reached this level was in 1995.
Given the weak sales pace observed in March and April 2018, prior to the imposition of tariffs by China, continued strong weekly exports are expected to add to the 12-month export total and could approach 10 million tons – a 30- year high. However, further growth in 12-month export totals is limited given exports are unlikely to significantly exceed elevated levels observed starting in May 2018. Port prices in Brazil are no longer showing premiums over those from the U.S. Gulf, reducing some of the price advantage that helped drive sales to the EU in the latter half of 2018. In addition, a return to more normal production in Argentina should increase supplies of soybean meal available for export, providing an alternative to imported soybeans. Additionally, a rebound in EU rapeseed production next year could reduce the need for imported soybeans.
Nonetheless, as long as China’s duties boost Brazil’s competitiveness, EU demand for U.S. soybeans should remain elevated with annual U.S. exports significantly above the 3.3-millionton average observed over the previous 10-year period.
Record Brazil Soybean Exports in February
In February 2019, Brazil soybean exports reached a record 6.1 million tons, more than twice the level observed in February 2018. This is in response to an early harvest and to strong demand, principally from China. Despite the continued 25-percent duty on U.S. soybeans to China, premiums enjoyed last year by Brazilian producers have evaporated. In fact, export values quoted from Paranagua are a few dollars below those quoted for U.S. soybeans from the Gulf. For commercial buyers in China, the current prices are a significant improvement over those observed 6 months earlier and are likely contributing to the strong demand. In addition, a 14- million-ton reduction in supplies, a result of a smaller anticipated crop and limited carryover from last season, have only added to early demand.
For Brazilian producers, returns on this year’s harvest are down considerably from last season when a significantly reduced crop in Argentina pushed early prices higher and premiums for shipments to China helped keep prices at elevated levels for much of the year. In addition, a stronger Brazilian real compared to last year has exacerbated the price decline in local currency. With China’s recent purchase of close to 10 million tons of U.S. soybeans and indications that more soybeans could be purchased in the future, Brazilian producers lack the pricing power seen in 2018. Therefore, current pricing relationships are unlikely to change without a change in market dynamics.
Global oilseed production is forecast fractionally lower at 593.0 million tons compared to 593.3 million last month. Lower soybean production offsets increases in global cottonseed and rapeseed. Global soybean production is down 910,000 tons in response to reduced output in Brazil and Paraguay. Dry growing conditions cut production 500,000 tons for each market. Global soybean crush declined with the smaller supplies, reducing both soybean meal and oil production. Soybean meal production declined 1.2 million tons to 238.2 million tons as declines were augmented by reduced extraction rates in Argentina. Despite the lower production, soybean meal trade increased, offsetting lower global soybean imports and exports. Soybean oil trade was marginally higher despite the reduced production leading to a small draw-down in global stocks. The U.S. season-average farm price projection for soybeans remains at $8.60 per bushel.
U.S. soybean export bids in February, FOB Gulf, averaged $351/ton, up $5 from January and $10 from December. Brazil Paranagua averaged $353/ton, up $4 from January and $2 from December. Argentina Up River FOB averaged $347/ton, unchanged from last month and down $10 from December. U.S. soybean meal export bids (FOB Gulf) in February averaged $340/ton, down $8 from January and $4 from December. Brazil Paranagua FOB averaged $325/ton, plummeting $36 from January but unchanged from December. Argentina Up River FOB averaged $326/ton, down $8 from January and unchanged from December.
The price spread between U.S. and South American soybeans remains small with no sign of a repeat of premiums observed last year for South American supplies. Despite record February exports in Brazil and tighter supplies, Brazilian port prices remain within a few dollars of Gulf quotes. Recent purchases of U.S. soybeans by China have likely kept South American prices in check. Wet weather in the United States and unusually cold temperatures in the northern United States have also added a few dollars to U.S. gulf prices in February further reducing price differences.
For the week ending February 28, 2019, U.S. 2018/19 soybean export commitments (outstanding sales plus accumulated exports) to China totaled 9.4 million tons compared to 27.7 million a year ago. Total commitments to the world were 39.3 million tons, compared to 48.0 million for the same period last year. Accumulated soybean exports were at 26.6 million tons, nearly one-third below the same period last year. Accumulated soybean exports to China were at 3.7 million tons, 21.5 million tons less compared to last year. Shipments to the rest of the world were at 22.9 million tons, 9.3 million above last year for the same period.