Soybeans close up

(Bloomberg) — China’s commercial soybean importers are likely to keep buying from the U.S. to cover a shortage later in the year despite rising bilateral tensions, according to an influential Chinese agricultural consultant.

Crushing plants haven’t yet purchased enough supplies considering that hog breeding is expected to recover and demand for soybean meal in animal feed is set to grow, according to Shanghai JC Intelligence Co.

Purchases by commercial importers may offer some solace to a market increasingly concerned about worsening relations between Beijing and Washington. The countries have been exchanging blows over everything from the origins of the coronavirus to new security legislation in Hong Kong, spurring Beijing to order state-run importers to halt purchases of some American farm products, according to people familiar with the situation.

But commercial purchases are exempt from the halt, and crushers need more beans for the fourth quarter and the first two months of next year, usually a peak time for U.S. sales. Also, dwindling supplies in Brazil have increased the premiums demanded on those cargoes, boosting the appeal of the new American crop, said Monica Tu, an analyst with Shanghai JC Intelligence.

“Crushers will need to buy at least 20 million tons to cover their needs until then, regardless of purchases by state reserves,” said Tu, adding though that processors will probably tread cautiously until they have a clearer picture of the future for U.S.-China relations and as crushing margins are weakening now.

Processors will still require that amount even after rolling over an estimated 10 million tons of beans to the fourth quarter following huge arrivals of Brazilian soybeans between May and July, said Tu. China is expected to import a record 10 million tons a month over that period.

Before the order went out to state-owned companies to halt purchases, they had been increasing their buying of U.S. soybeans and corn in a bid to meet commitments under the phase one trade deal. The country had fallen behind on a pledge to purchase about $36.5 billion of products this year due to the disruptions caused by coronavirus pandemic.

Sinograin, a state-owned stockpiler, and Cofco, the largest food processor, undertake imports on behalf of the government for national reserves. State companies can access 60% of the 7.2 million tons of corn imports that China allows annually under its low-tariff-rate quotas. Though the halt to purchases will impact their imports for the government, they will be able to buy for their own commercial soy plants.