Meros in the Media: The Disappearing US-China Soybean Trade

Meros discusses how China was able to substitute US soybeans so quickly.

Meros’ Lucia Vancura recently chatted with Nathan VanderKlippe of Canada’s Globe and Mail newspaper about how China was able to so quickly and completely eliminate US soybean imports in the last few months since the 2018 marketing year started in September. Did they find alternative suppliers? Did they substitute for other feed ingredients?  How could US soybean exports to China, which are 25% of US production, really be substituted out so quickly, particularly since US soybeans are still price competitive with Brazil, Argentina and other sources, despite the 25% tariffs?

The Chinese government may not have explicitly forbidden Chinese traders from importing US soybeans, but as VanderKlippe reports from our conversation “in a country where political favour remains a key factor in corporate success, China’s reach extends deep into the private sector, too.” The Chinese government does not need to issue a ban on buying US soybeans. It just has to send a clear message that avoiding US soybeans, despite the favorable price, is the expected approach.

The full article is behind a paywall but available here:  https://www.theglobeandmail.com/business/article-soybean-trade-shows-resolve-of-china-as-it-pushes-back-on-us-demands/

In the short-term, since September, China has used a variety of tools to make up for the elimination of US soybeans. This has included increased soybeans from Brazil and other countries and increased use of soy protein substitutes, including rapeseed or canola meal, pea and domestic Chinese DDGS. The Chinese government also released new guidelines for a lower-protein swine feed ratio that decreases the amount of soy protein needed (the Chinese soy protein ratio in feed has been much higher than, for example, in the US swine feed ratio because the price of soy has been so reasonable but there is not necessarily a nutritional need for so much soy in China’s swine feed) and China’s major feed mills have agreed to these new standards. Other measures have included releasing soybeans from government stockpiles and using more of their domestic soybeans for feed (rather than food).

Looking at the longer term, China may import some US soybeans later this year to fill the remaining gaps, but their on-going efforts to find alternative suppliers, substitute products and a big-picture effort by China to invest and expand in agriculture supply channels world-wide are only opening more opportunities and risk diversification for Chinese traders. The longer the trade war goes on, the more chance Chinese traders will more permanently replace US soybeans in their trading portfolio.

 

Meros Consulting is a Tokyo-based strategic business advisory. We work with companies and governments globally to advising on trade dynamics and support business development in food and agriculture industries.