Buyers unwind Brazil soy deals, seek US beans as trade spat opens arb

29 Mar 2018 | Andy Allan

European buyers of Brazilian soybeans are reportedly unwinding some of their deals and sourcing product from the US Gulf instead due to arbitrage opportunities triggered by fears of a trade war.

Two market sources said Thursday that cargoes destined for Europe were now being sold on, or back to the sellers, and will head for China instead, while those same buyers would now source much cheaper beans from the US Gulf.

One European and one Brazilian source said the cargoes were being sold back by two of the four large trading houses.

"It makes sense to do so," said one Brazil source.

USDA figures released Friday showed that the US sold no cargoes for export to China in the week ending March 22 for the current marketing year and just one for the next.

Excluding cancellations, it represents a nine-month low for net weekly sales, USDA data showed, with sources claiming fears that China may tax US soybeans is deterring buyers.

At the same time, the biggest buyer of US beans was the Netherlands, which took 113,000 mt, including 66,000 mt switched from other destinations.

The shift in buying patterns has left Brazil FOB cargoes at a steep 40 to 50 cents per bushel ($15-18/mt) premium to US beans for loadings in June, equivalent to a 30-cent premium on a delivered CFR basis into China.

"The vast majority of the Chinese are still paying up 30 to 35 cents per bushel ($11-13/mt) to buy Brazilian, with only a few trades from the US to China, and most of those are taken in house by large traders," said Charlie Sernatinger, a futures broker with ED&F Man.

Protein premium

However, some sources claim that while there is a steep discount, part of that premium can be explained by better protein quality.

"So, as far as I understand it, we are a 37 to 40 cent per bushel paper discount to Brazil. But after oil and protein premium is taken off, we are a legitimate 15 to 20 cent discount to Brazil," a third source said.

"It also seems like China is a bit under-covered so they are just buying regardless of price right now," he added.

The price divergence comes as the US Export Council said Thursday that China was still considering slapping a tax on US imports as retaliation for US moves to tax Chinese goods.

However, that was set against a report by the China National Grain and Oil Information Centre which claimed that fears over a soybean tax were "easing".