With the U.S. dollar crushing the Brazilian Real, soybean shipments from South America are more attractive to big customers like China. What’s to happen to U.S. soybeans?
When you can’t compete on price, you have to compete on quality, which makes one recent announcement by the USDA a trend that could make or break some farmers by the end of next year.
The USDA has set a quality standard on shipments heading to China.
Priority for soybean shipments will now be given to cargoes with impurity levels below 1 percent.
That’s half from the previous threshold and comes at the request of the Chinese government.
Back on December 15, China’s quarantine authorities destroyed about 6.8 million metric tonnes of U.S. soybeans over mildew problems.
The country also found that shipments from eastern ports had far worse impurity problems than ones from the west coast.
U.S. exporters can’t say no to this. China buys more than $14 billion soybeans, and at least one-third of the country’s crop.
The problem is that this is going to affect business in a big way.
These standards don’t impact Brazilian exporters.
U.S. exporters will have to pay for additional cleaning and buyers will be pressed for better quality to meet quotas.
This is going to put a lot of pressure down the supply chain on farmers.
Quality is going to be king.
We say it all the time, but get your grain tested and start to think about how you can improve the quality of your crop.
These types of programs have a ripple effect across the supply chain.
Heading into the new year, the USDA expects that U.S. soybean exports will hit new records.
The latest forecast says $24.1 billion for the year. China remains the biggest opportunity and risk for U.S. production and exports.
The question is how much these new standards will affect business in the future.
My bet is that we’re going to see bottlenecks emerge in this process.
U.S. to Tighten Standard for Soy Shipped to China, USDA Says
U.S. officials will impose stricter quality controls on exports of soybeans headed to China in response to a request from the government in Beijing, a move that may curb some American shipments.
Shipments with impurity levels below a new standard of 1 percent, half the current level, will receive priority for shipment, while soybeans above it may be held back for more cleaning, U.S. Department of Agriculture spokesman William Wepsala said in a telephone interview Wednesday. The new standard may go into effect Jan. 1, he said.
China is the world’s biggest soybean importer and purchases have climbed to a record as an expansion in large-scale livestock farming and a shortage of protein-rich feed grains boosts soymeal consumption. The Asian nation is by far the biggest destination for U.S. soybean exports, with sales of $14.2 billion of the oilseed in 2016, more than one-third of the value of the crop.
No. 1 soybean futures for May delivery on the Dalian Commodity Exchange rose 0.4 percent to 3,660 yuan ($557) a metric ton. Soybeans for March delivery advanced 0.1 percent to $9.65 a bushel on the Chicago Board of Trade.
The new rules mean “the U.S. is going to lose some business,” said Charlie Sernatinger, global head of grain futures for ED&F Man Capital Markets in Chicago. American shippers will have to pay a premium for supplies that meet the higher standards, he said. “There are no such certificates required for Brazil beans.”
China’s soybean imports totaled 77.3 million metric tons between January and October, according to customs data. Purchases from Brazil were 46 million tons in the period and the U.S. accounted for 22 million tons.