Companies in China are expected to cancel the majority of the remaining orders of soybeans they committed to purchase from the U.S. for the year ending August 31, as soon as the extra tariff on imports from the U.S. takes effect Friday.
China is the top buyer of soybean in the world and has not taken delivery of over 1.1 million metric tons booked for this current year, according to U.S. Agriculture Department figures. The Department of Agriculture in the U.S. said a week ago that China resold close to 123,000 metric tons of its committed deliveries to Iran and Bangladesh.
The shipments will either be cancelled or be resold if the new tariffs are imposed, said an investment manager with a Shanghai investment firm. The new tariffs will create a loss for those handling the soybean, the investment manager said.
China has unspecified volumes of reserves of both imported and domestic soybeans. It was forecasted to purchase 97 million metric tons of soybeans during the current year.
Analysts are not expecting that many soy cargoes to arrive from the United States after the deadline on Friday as buyers already have stopped shipments.
Chinese companies agreed to increase their purchases of soybeans from Brazil since April and the inventories of soybean at major crushers are at their highest they have been in many years.
Brazilian supplies drop to seasonal lows during the first and the fourth quarter, a period when imports into China are dominated by the United States. However, it is expected that Chinese companies might have to import as much as 10 million metric tons from the U.S. when supplies in from South America run low.
One regional director in North Asia said that if China intends to maintain its crushing plants in operations during the fourth quarter as well as the early first quarter, the must import soybeans from the U.S. even with a tariff of 25% added to them, as no other viable options exist to cover that shortage.
During the 2017 fourth quarter and the 2018 first quarter, China imported from the U.S. close to 25 million metric tons of soybeans.
China would then have the most expensive soybeans in the world, which might boost prices domestically of soybean oil and soybean meal, said an analyst in Singapore.
Premiums for soybeans in Brazil for shipment in August were close to 70% higher than those in the U.S., said the analyst.