The U.S. soybeans "China" has been buying over the last two months will apparently go directly into China's State reserve. Old beans are being auctioned off from reserves to make room for the new beans. The old beans are being offered to processors at bargain prices to give them some relief from negative margins as they await the arrival of another monster Brazilian crop that will drive market prices down again.
On December 11 China auctioned 512,500 metric tons of imported soybeans from its State reserves to make room for U.S. soybeans that China has been buying to fulfill its part of the U.S.-China trade agreement reached in October. This was the first in a series of auctions to be held over coming weeks to clear space for American soybeans China has been buying to fulfill the soybean purchase pledge made in late October. A second auction will be held tomorrow (December 16), offering another 513,884 metric tons. Chinese traders think the total amount auctioned over coming weeks will total about 4 million metric tons.
The December 11 auction sold 397,043 metric tons (77.5% of the beans offered) at an average price of RMB 3,935 (about $558) per ton. Some of the auctioned beans sold for prices as high as RMB 4,040 per ton. In comparison, the average price for imported soybeans reported by Shanghai Mysteel was RMB 4,220 in the first week of December.
The auctioned beans were offered mostly in lots of about 10,000 to 45,000 metric tons scattered across 8 Chinese provinces. About half of the beans offered are located in Shandong Province and Tianjin Municipality. Others were in Liaoning, Sichuan, Hebei, Henan, Hunan and Zhejiang Provinces. Buyers must take delivery of the beans between December 20 and March 2026.
The auction news suggests that newly purchased U.S. beans will be stockpiled in China's reserves. This is consistent with reports that nearly all Chinese purchases of U.S. soybeans have been made by COFCO--China's State-trading enterprise for grains and oilseeds--which imports on behalf of Sinograin. The 4-million-ton total expected for the auctions is close to the volume of sales of U.S. soybeans to China announced since late October.
China's extra 10-percent tariff on U.S. beans still prevents them from being commercially viable for imports by private sector buyers. Presumably, COFCO/Sinograin imports are either exempt from the tariff or an accounting trick washes it out.
The displaced old beans released from reserves via auctions are being sold to crushing enterprises and feed mills. Sinograin has not revealed the origin (e.g. U.S. or Brazil) of the old reserves being released.
Sinograin lost money on the December 11 auction. The beans auctioned had been produced -- and presumably imported -- in 2022 and 2023 when soybean prices were at their peak. Based on customs data, I calculate that the average cost of importing the 512,500 soybeans offered for auction was $659 per ton, which exceeds the average sale price (at the current exchange rate) of $558 per ton. Thus, Sinograin sold 397,000 metric tons of soybeans at $101 less than they paid for them, a loss of over $40 million. Additionally, I estimate that interest cost on the beans could be $68 per ton and the storage cost could be $41 per ton, a total cost of $210 per metric ton. The total loss on the auction could have been at least $83 billion.
(It is unclear whether Sinograin paid tariffs (3%) and value added taxes (10%) on the imported soybeans it is releasing from reserves. It is also unclear what happens to the 112,500 tons of unsold beans -- if they failed to sell on December 11 at a bargain price, why would they sell in a future auction? If the unsold beans have to be written off, their acquisition cost of $74 million would be an additional loss.)
Sinograin will incur similar losses on the December 16 auction which will offer mostly 2022 beans (487,000 metric tons) and about 13,000 tons each from 2023 and 2024. The regional distribution of the Dec. 16 beans is similar to those offered last week.
Chinese authorities are orchestrating these auctions and imports to satisfy crushing demand for beans while insulating the domestic soybean crop--now being marketed--from lower international prices.
The Chinese market built up stockpiles of beans and meal during summer and early fall months when imports exceeded monthly crush. China's monthly soybean imports dropped from 12.9 mmt in September to 9.5 mmt in October, and 8.1 mmt in November. Over those same months the average cost of imported soybeans indicated by customs data ratcheted up from $447 per ton to $467 per ton.
Crush is still running at a torrid pace but now exceeds monthly imports. In November crush was estimated at 9 million metric tons (830,000 tons more than November last year). Crush is estimated to reach 8.6 million tons in December (up 400,000 tons from a year ago). Crushing margins appear to be negative, a problem that is exacerbated by increases in costs of imported soybeans. Thus, the auction of cheap beans from reserves supplements the shrinking flow of imports and constitutes a subsidy to keep crushers from seeing their negative margins grow even bigger.
Meanwhile, China's own soybean crop is being marketed. Authorities hope to nudge domestic soybean prices higher. The price of domestic beans exceeds the price of imported beans, so no auctions of reserves were held in main production areas of Heilongjiang, Jilin, and Inner Mongolia. They probably want to slow the pace of imports while the domestic crop is being marketed to keep the general level of prices up.
Market news reports say Chinese customs authorities are also preparing to slow-walk inspections of imported soybeans, extending the time needed for customs clearance to 25 days. Authorities previously delayed inspections during the first months of 2025, then returned to normal when Brazilian beans began arriving in April.
No comments:
Post a Comment