Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the United States in the year ending Aug. 31 once the extra tariff on U.S. imports takes effect from Friday.
China, the world’s top soybean buyer, has yet to take delivery of about 1.14 million metric tons of U.S. soybeans booked for the current marketing year, according to U.S. Department of Agriculture data.
The USDA reported last week that China had resold some 123,000 tons of committed deliveries to Bangladesh and Iran.
Soybeans are a key flash point in the worsening trade relations between the United States and China after Beijing said it would levy tariffs on imports starting Friday, July 6, in retaliation against a raft of duties imposed by the Trump administration.
By focusing on U.S. agricultural produce, as well as raw materials such as coal, China is targeting the rural communities in states that voted for Trump in 2016, such as Iowa.
“These shipments will be either canceled or resold if extra tariffs are imposed,” said Gao Yanbin, an investment manager with agriculture investment firm Shanghai Shenkai Investment Co. “The tariff rate is too high which will make crushers lose money.”
Some cargoes will get through because shipments destined for state reserves are free from tariffs, Gao said. China holds unspecified volumes of state reserves of both domestic and imported soybeans.
China had been forecast to buy 97 million tons of soybeans this marketing year.
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Analysts don’t expect many soy cargoes from the United States to arrive after the July 6 deadline as buyers already have stopped shipments.
The Peak Pegasus bulk carrier will arrive before the deadline while the Aeolian Fortune and Kea already have arrived, according to Monica Tu, an analyst with Shanghai JC Intelligence Co.
Chinese companies have contracted to increase purchases from Brazil since April and soy inventories at major crushers currently are at the highest in years, according to the China National Grain and Oils Information Center, or CNGOIC. That’s likely to change later in the year.
“There will be a supply deficit from the fourth quarter as crushers won’t have enough supplies if they don’t take U.S. soybeans,” Gao said.
Brazilian supplies fall to seasonal lows in the first and fourth quarters — a period when China’s imports normally are dominated by the United States. The CNGOIC expects Chinese companies may need to import at least 10 million tons from the United States when South American supplies run down.