China's weak soybean demand dims prospects for US cargoes after tariff snub

By Ella Cao and Naveen Thukral

BEIJING/SINGAPORE, Sept 30 (Reuters) - China's soybean buying is likely to decline in the months ahead due to weak animal feed demand and negative crush margins, leaving little room for US cargoes as they were excluded from proposed tariff relief after last week's Washington summit.

China is set to lower tariffs on a broad range of US farm products, but soybeans, its biggest US agricultural import, were excluded from the tariff reduction list following the talks between Chinese President Xi Jinping and US President Donald Trump.

Private oilseed processors in China, the world's biggest soybean importer, have covered most of their needs through the Lunar New Year in early February with supplies from Brazil, Argentina and state reserves, traders and crushers said.

"We have booked for all of October and much of November shipments from Brazil and Argentina," said a senior executive at a Chinese oilseed processing company.

"Most of these cargoes will arrive around the high demand Chinese New Year period. We are not interested in making further purchases as these will incur losses."

Chinese state-run companies have bought around 13.7 million metric tons of US soybeans, which are currently being harvested, following a trade deal between the two countries in May, said three Asia-based agricultural traders who spoke on condition of anonymity.

However, private crushers have taken only South American shipments, the traders said.

US soybeans still face an additional 10% tariff since the start last year of a trade war between Beijing and Washington, making them uneconomical for commercial buyers.

Brazilian soybeans were quoted this week at par with US cargoes, excluding the tariffs, at around $590 per ton, including cost and freight, according to the senior Chinese crushing executive and an Asian-based trader.

Brazilian beans typically have a higher oil content, making them more attractive to crushers, they said.

Benchmark Chicago soybean futures are down 1.5% so far this week with the market expected to face further losses as the US harvest increases toward its peak with China set to slow its purchases.

SLUGGISH DEMAND, WEAK MARGINS

Crushing margins for soybeans scheduled for November shipment from the US Pacific Northwest and the US Gulf are 120 yuan ($17.90) to 200 yuan ($29.83) per ton in the red and about minus 120 yuan per ton for Brazilian soybeans, said Rosa Wang, an analyst at Shanghai JC Intelligence.

Crushers in China's main processing hub of Rizhao were making a loss of 33.54 yuan processing a ton of soybeans on Tuesday, according to LSEG data.

Import demand has weakened as crushing plants hold high inventories and anticipate softer fourth-quarter feed demand, with sow herds shrinking amid government efforts to curb overcapacity in the hog industry.

Soybean inventories at 111 Chinese crushing plants reached 7.96 million tons in the week of September 25, according to consultancy Mysteel, the highest in at least 15 years.

In Sinograin's latest auction of imported soybeans, only 37.3% of the 514,000 tons offered were sold, Mysteel data showed, underscoring weak buying appetite in the market.

Chinese buyers booked around 50 soybean cargoes in the first three weeks of September, the fewest in four years, said Eduardo Vanin, senior agriculture strategist at Marex in Curitiba, Brazil, adding that state-run COFCO and Sinograin accounted for about 30 US cargoes, while private buyers booked the rest from Brazil and Argentina.

"Unless margins recover, commercial buyers are unlikely to book more cargoes from overseas," said Johnny Xiang, founder of AgRadar Consulting based in Beijing.

"If supplies tighten, buyers are more likely to turn to reserve auctions or idle plants for maintenance than import more beans."

($1 = 6.7045 Chinese yuan renminbi)