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Economy

Is Southeast Asia China's new middleman for US soybeans?

Trade statistics point to emergence of new routes bypassing increased tariffs

U.S. soybeans, such as these grown in Missouri, have become comparatively cheap due to the trade war with China and a bumper harvest.   © Reuters

TOKYO -- China's retaliatory tariffs on soybeans have prompted the U.S. to slash exports to the country, but a 90% jump in shipments to regions like Southeast Asia suggests Chinese buyers may have found a back door for imports of the grain.

China imports more than 100 million tons of the crop annually, and has been a major buyer of U.S. soybeans, accounting for 60% of the country's shipments. That changed significantly when China levied additional tariffs of 25% on certain U.S. goods in July.

U.S. soybean exports to China came to 27.68 million tons for the crop year from September 2017 through August 2018, down roughly 20% from the previous crop year, according to data released by the U.S. Department of Agriculture last month.

For the crop year through August 2019, the figure stood at about 10% of the previous year's amount, as of Oct. 4. In contrast, exports to Southeast Asia, Europe and South America have almost doubled.

Demand for livestock feed and cooking oil has been on the rise in China, and it would be difficult to simply switch to a different supplier to make up for the shortfall.

Beijing does not disclose detailed trade statistics, making it difficult to ascertain where it is importing soybeans from, but market watchers have speculated that there is a new middleman.

"The [Southeast Asian] region has easy land access to China, and countries there could be getting profit margins from reselling U.S. soybeans to China," said a grain market insider.

Exports of U.S. soybeans to Vietnam and Thailand in recent months have soared by 60%-90% from a year earlier.

China is also increasing imports of the crop from producers such as Brazil and Argentina, and it is thought that South America, too, could be emerging as a staging post for U.S. soybeans.

Brazil is in the middle of its planting season, and export capacity of old grains will likely reach its limit soon, according to a major Japanese trading house. There is growing speculation that the country may be trying to secure inexpensive U.S. soybeans for its own consumption, and selling the remainder of its crop to China at elevated prices.

Buoyed by the new demand from China, Brazilian soybeans are trading high, with premiums added to Chicago futures prices. The market conditions appear to support the theory that South American producers are using relatively cheaper U.S. soybeans as a control valve for their trading.

In spring, soybean Chicago futures were trading at over $10 per bushel. But prices started falling in the summer, and are currently hovering at the $8 range, largely due to the Sino-U.S. trade dispute, as well as this year's bumper American harvest.

Many experts are also monitoring the growth of U.S. production of soybean oil, which is not subject to the increased tariffs. 

Data released earlier this month by the U.S. National Oil Seed Processors Association shows that soy oil extraction in September posted a record high for the month.

The increased production is destined for China and Canada, said Kazuhiko Saito, chief analyst at research company Fujitomi. The U.S. is thought to be seeking to increase in soybean oil exports to China.

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