Macro
China Buys 208,000 Tons of U.S. Soybeans After Brazil's Tax Change, First Purchase Since January
In a surprising turn of events, Chinese buyers have significantly increased their purchases of U.S. soybeans following a tax change in Brazil, the world's largest soybean exporter. According to the U.S. Department of Agriculture, China has purchased at least 208,000 tons of soybeans since the tax change was announced last Tuesday. This marks the first such transaction since January. The tax change in Brazil limits the ability of commodity exporters and processors to monetize some tax credits, leading to reduced offers from Brazilian suppliers. Victor Martins, Latin America risk manager for Amius Ltd., noted, "China is buying U.S. supplies because buyers in Brazil cannot pass along those higher costs to the farmer."
The tax change has created significant challenges for Brazilian exporters. Abiove, an industry group representing major crop merchants like Archer-Daniels-Midland Co., Bunge Global SA, Cargill Inc., and Louis Dreyfus Co., warned that the measure would slash profits for soybean processors. Some traders have already withdrawn new offers for commodities such as soybeans and corn from the market. Finance Minister Fernando Haddad is considering withdrawing the decision after facing backlash from companies and Congress. The U.S. also sold 152,000 tons of corn to unknown destinations during this period, a move some traders attribute to the Brazilian tax change.
The tax change in Brazil has broader implications for global agricultural markets. In the second quarter of 2024, combined U.S. and Brazil exports of corn, soybeans, and wheat are up 5% year-over-year. In the U.S., the increase is mainly driven by a 12% year-over-year rise in corn exports, with soybeans and wheat also contributing. In contrast, Brazil's soybean exports are up slightly, but corn and wheat exports have significantly declined. The new tax plan, signed by Brazilian President Luiz Inacio Lula da Silva, will need Congressional approval within four months to remain in effect. The uncertainty has temporarily slowed the purchase of agricultural products, potentially affecting export volumes.
"China is buying US supplies because buyers in Brazil cannot pass along those higher costs to the farmer. They are paying extra because offers in Brazil are reduced."