China Is Buying More Brazil Soy in Signs of Shifting Trade Flows

(Bloomberg) -- China is making big purchases of soybeans from Brazil, an unusual move for this time of year.

The Asian nation needs soybeans to feed its expanding hog herds, and November is a prime time for the U.S. to sell its crops, having just finished the harvest. Supplies are at their peak and American prices should be the most attractive in the world. 

Yet this year, Brazil is even cheaper and cutting into the U.S.’s key sales window. Last week China bought at least 30 soybean cargoes from the U.S. and Brazil, with more than half coming from the South American nation, according to people familiar with the matter. The move shows that Brazil, already the No. 1 shipper, is becoming ever more competitive on world markets.

In an unusual twist, this slight shift in global trade flows could send world soybean prices falling. If Brazil steals market share from the U.S., American stockpiles could rise, driving down prices at the exchange in Chicago -- which is also the benchmark for global prices. 

Lower soybean prices could relieve some of inflationary pressure on food, since it is a key cost in raising animals for meat. Soybean futures in Chicago are already down about 25% from a high reached in May.

“The fast pace of seeding in Brazil and the outlook for a record and early harvest have been helping to pressure Chicago prices, as the U.S. may lose share in global trade,” said Daniele Siqueira, an analyst at AgRural, a consultancy firm. 

While China’s purchase of around 30 cargoes is substantial, it’s not atypical for the season, according to traders and analysts.

Brazil’s soybeans are increasingly competitive compared to the U.S., the No. 2 shipper. Its crops are winning on the world marketplace because everything from land to labor to fuel is cheaper, and it’s benefiting from weak local currency. Brazil shipments totaled 1.5 million tons in the first 12 days of November, more than what was shipped the whole month last year. 

The U.S.’s loss of exports probably can’t be made up, even as demand rises for biofuels and cooking oil, said AgriVisor LLC analyst Karl Setzer.

“This domestic demand may lessen the impact of slow exports, but unfortunately it will not completely offset it,” Setzer said Tuesday in a note to clients.

Most of the purchases will be shipped in December and January, the people said, asking not to be identified as they’re not authorized to speak publicly. 

Brazil’s soybean harvest is expected to have an early start around Christmas in the state of Mato Grosso, the top grower, meaning shipments of the new crop could start in the second half of January, according to Siqueira.

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