ERS Report-“Interdependence of China, United States, and Brazil in Soybean Trade”

Late last week, the U.S. Department of Agriculture’s Economic Research Service (ERS) released a report (“Interdependence of China, United States, and Brazil in Soybean Trade,” by Fred Gale, Constanza Valdes, and Mark Ash) that discussed “factors driving China’s imports of soybeans and production in Brazil and the United States, price dynamics, and market adjustments to China’s retaliatory tariff on U.S. soybeans.” Today’s update includes highlights from the ERS report.

The report stated that, “Geographic concentration of soybean importers and exporters is a distinguishing feature of the global soybean market. During 2016/17, the United States and Brazil together accounted for 83 percent of world soybean exports. The United States exported 59 mmt of soybeans and Brazil exported 63 mmt, while Argentina was the third-leading exporter with 6.9 mmt. China was the destination for 61 percent of U.S. soybean exports and 77 percent of Brazil’sthat year.”

“Soybeans are the most prominent agricultural commodity exported to China by both the United States and Brazil. During 2017, soybean exports valued at $12.3 billion accounted for 63 percent of U.S. agricultural exports to China. Soybeans accounted for less than 20 percent of U.S. agricultural exports to other regions,” the report said.

“The share of soybeans in Brazil’s agricultural exports to China was even larger. During 2017, $20.3 billion of soybean exports accounted for nearly 88 percent of Brazil’s agricultural exports to China.”

Gale, Valdes, and Ash explained that, “The concentration of soybean trade meant that Brazil was the only exporter capable of supplying China with large volumes of soybeans to replace U.S. soybeans after China imposed its tariff in 2018.”

“In parallel, increases in U.S. soybean exports to the European Union, Egypt, Iran, Mexico, and other countries did not fully offset the decline in exports to China during 2018. During the first 6 months of the U.S. soybean marketing year 2018/19, exports to China were down 21.7 mmt from a year earlier…From September 2018 to February 2019, U.S. soybean exports were down 12.1 mmt from the same period a year earlier,” the ERS report said.

More narrowly with respect to China’s soybean imports, Gale, Valdes, and Ash pointed out that, “After rising nearly 65 mmt from 2006 to 2016, China’s soybean imports declined during 2018 for the first time in 15 years.”

And, “During 2018, soybeans comprised 30 percent of the value of China’s agricultural imports, the largest category.”

Last week’s report stated that, “China’s consumption of both soybean meal and oil has grown dramatically since the country began importing soybeans.

Estimates from USDA’s Production, Supply and Distribution database show that China used just 1 mmt each of soybean meal and oil in 1990. Estimated soybean meal use grew to 68.6 mmt, and soybean oil use grew to 16.4 mmt in 2016/17. From 2007 to 2017, USDA estimates indicate that China’s soybean meal use rose nearly 40 mmt, and soybean oil use grew 7.7 mmt.

After additional analysis on the issue of China’s soybean imports, the authors turned to a closer look at the competition between the U.S. and Brazil to supply China with soybeans, and stated that, “With China’s tariffs assumed to remain in place, USDA (2019) projected that U.S. soybean exports would rise to 61.4 mmt and Brazil’s exports would rise to 96.1 mmt in 2028.”

Also with respect to the Chinese tariffs, ERS indicated that, “As the tariff took full effect during the first 5 months of China’s 2018/19 market year, Brazil’s share rose to 77 percent, while the U.S. share fell to 4 percent.”

After a more detailed examination of variables associated with soybean output growth in the U.S. and Brazil, which propelled exports from the two countries, Gale, Valdes, and Ash explained that, “Competition between U.S. and Brazilian soybean exporters for sales to Chinese buyers tends to equalize the two countries’ soybean export prices.”