COVID-19 has created certain impact on exports and supply chain of US soybeans. This pandemic is causing delay in the fulfilment of phase one purchase targets between US and China. With the phase one trade deal with China in effect since February 15, agricultural experts fear the coronavirus outbreak will impede China’s ability to fulfill the deal which requires China to purchase an additional US$12.5 billion worth of US agricultural products in 2020, and US$19.5 billion more in 2021. US export inspection data published by USDA reported that there were no American soybeans being shipped to mainland China in the week ended March 12. For this year, soybeans export sales to China totaled at only 1.13 million MT, down from 5.08 million MT in the comparable period of 2019, according to USDA data.
The trade agreement contains a clause that calls for consultations if a natural disaster or other unforeseeable economic event delays compliance, although China has not invoked that clause in reaction to the coronavirus pandemic. US Treasury official reported that the government does not expect the virus to change China’s commitments. However, the impact of COVID-19 on the Chinese economy has made it harder to kick-start phase one purchases as movement of goods in and out of China are being restricted and businesses remain closed with workers staying home. As global financial and commodity markets continued plummeting, consequently the start date for the deal might be moved from February to late April or early May.
At the same time, Brazil’s enormous soybeans harvest and price advantage will likely prevent US soybeans from being competitive for Chinese buyers until at least August. This is due to the seasonality of soybean commodity where harvesting season in US starts a few months later than Brazil’s harvest. However, earlier this month, China began to grant tariff exemptions for some crushers to import US soybeans. The waivers have no restriction on the volume amount and are valid for one year.
The COVID-19 pandemic is expected to hurt the demand for US soybeans. Combined with low purchase from China and competitive prices of Brazilian soybeans, the US soybeans price will be affected. Consequently, palm oil prices will also be pulled down. Following the drastic decline in Brent crude oil price, there is an increasing spread of palm oil-gas oil that will reduce the price competitiveness of oils and fats for biodiesel. The price spread between palm oil and gas oil has widened to US$220/MT as at March 19, from an average of US135$/MT in Feb20, which indicates a higher subsidy is needed for biodiesel blending activities.
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