US, Brazil to Compete on Soybean Sales to China

21 January 2020

The newly signed US-China trade deal sets the US and Brazil in competition to export soybeans to China.

Brazil historically has exported about 60% of its soybean production. If that percentage holds up again this year, there could be little room for China to substantially increase its purchases of US soybeans, as stipulated under the “phase one” trade deal the two countries signed.

Currently, Brazil is on track to yield 3.22 tonnes of soybeans per hectare, according to Gro’s recently launched Brazilian soybean yield model. That implies Brazilian soybean production of a near-record 118.8 million tonnes, up 3.2% from last year.

China has pledged to purchase over two years at least $32 billion more in agricultural goods from the US than it did in 2017, before the trade war began. The biggest share of that is likely to be soybeans. But the agreement allows China to base its purchases on market conditions.

A pace analysis that Gro performed points to US soybean exports of 1.5 billion bushels for the 2019/20 season that ends in August. Our export pace analysis, which is based on season-to-date total commitments over the past 20 years, indicates sales to China would need to pick up significantly in the next two months to put the US on track to hit the USDA’s export forecast of 1.775 billion bushels, included in the Jan. 10 WASDE report.

The USDA estimate, which was left unchanged from the December WASDE, suggests the department was expecting an increase in soybean sales to China, but was still taking a wait-and-see approach by not pushing its estimate too far. In 2017/18, the year before the US-China trade war began, the US exported a record 2.134 billion bushels.

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The chart on the left shows US total commitments for soybean sales. The 2019/20 season (blue line with markers) is the second lowest total in the past 10 years (min/max shaded area). Only the 2012/13 campaign that was devastated by drought was lower at this point of the season. Pace analysis is performed using the total commitments for a specific week of the season and running a linear regression against final exports. This season’s current commitments figure points to final exports of 1.5 billion bushels (40.8 million tonnes). The chart on the right shows a history of soybean exports from the US (green bars) and Brazil (blue bars). Brazil’s exports surpassed the US in the 2012/13 season; 1.5 billion bushels would be the lowest total from the US since that same 2012/13 season. Click on the image to interact with the charts in the Gro web app.

Brazil is perhaps the biggest determining factor of US soybean exports, even more than the terms of the “phase one” trade agreement with China. The US currently has a short window of time before Brazil begins to dominate global soybean exports starting in March as the newly harvested crop typically makes Brazil the cheapest origin. With another very large crop coming, Brazil will once again provide the majority of soybeans to China in the coming months.

Forecasting Brazil’s soybean crop is an important step in building supply and demand balance sheets for all the major soybean exporters, determining global trade flows, and performing a residual demand analysis, which is a calculation of how big a share is left for the US to export after other major players have exported their products.

One way to forecast exports for a crop year is as a percentage of production. Over the past five years, Brazil has exported an average of 60% of its soybean production. With the Gro yield forecast model implying Brazilian production of 118.8 million tonnes, the resulting export forecast would be 71.3 million tonnes in the crop year starting in February.

How much US soybeans China buys in coming weeks will reveal how quickly Beijing is going to implement the just-signed trade deal. It also will be a key factor that US soybean growers will take into account as they make plans for next season’s plantings. Analysts at Gro Intelligence will be closely following the USDAs weekly Export Sales Report as well as export data from Brazil’s MDIC, a government department, and will be commenting on significant developments.

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