Beijing to watch soybean supplies closely as tariff plan triggers price surge

[BEIJING]China's agriculture ministry said on Tuesday it expects soybean supplies to be "basically normal" in the short-term after Beijing proposed a 25 per cent tariff on US imports, but it will monitor the impact for the rest of the year.

In its first official comment on the issue, the Ministry of Agriculture and Rural Affairs acknowledged in its monthly crop report that the domestic market is "highly concerned" about the escalating trade friction with the United States.

It also noted that South America is China's main supplier during the first part of the year.

However, "further developments and the impact on supply and demand for the whole year must continue to be monitored," it said, in an acknowledgement of the planned 25 per cent tariff on soybeans from the United States, China's No. 2 supplier.

The proposed tariffs are in retaliation for recent aggressive US trade actions amid an escalating trade dispute between the world's top two economies.

The ministry comments come as soybean processing margins have rocketed, with prices for meal and soybeans surging following news of the tariff plan, stirring concerns about the impact of the dispute on a critical agricultural sector.

Animal feed makers worry it will inflate their costs and increase retail meat prices in the world's top pork consumer.

China imports about US$40 billion in soybeans a year, which are crushed to make meal for use in animal food and oil for cooking. About a third of its imports come from the United States.

Without a timeframe for the tariffs, and proposed talks between the US and China now on the table, there is still a great deal of uncertainty in the market, say analysts.

The ministry did not change its forecast for soybean imports in the 2017/18 crop year, and has not yet issued an outlook for the following year.

The ministry also said state corn sales to begin this week would curb rising prices for the grain in the near-term but that the impact would be limited, with demand from processors expected to be healthy.

Average wholesale corn prices during the 2017/18 year are seen remaining between 1,600 yuan and 1,700 yuan per tonne.

The report also lowered the forecast for sugar output in 2017/18 by 50,000 tonnes to 10.25 million tonnes, largely due to a decline in yields in major growing region Guangxi.

While the drop in output will increase China's sugar deficit, global prices are at a 2-1/2-year low, and the impact on domestic prices needs to be watched, it said.

Signs of drought in Yunnan province, the second-largest production region after Guangxi, has raised concerns about an impact on future cane planting and the emergence of seedlings.

BLOOMBERG