Trump’s trade war sees US soybean exports heading south

Trump’s trade war sees US soybean exports heading south

A weaker Q4 for smaller dry bulk tonnage should be followed by a stronger Q1 and Q2 as seasonality returns amid trade disruption, writes William Tooth from Maritime Strategies International (MSI).

Two months into the current US soybeans trading year, the impact of president Donald Trump’s trade war is becoming more apparent, according to the latest Dry Bulk Freight Forecaster from Maritime Strategies International (MSI).

US exports between September and October have dropped by 41% year-on-year, but whilst there is a significant drop in exports to China (down 96% yoy), there is an increase to shipments elsewhere (up 86% yoy).

Recently released September trade data has provided an early indication of the likely impact of China’s 25% import tariff on US soybeans on Q4 peak trade levels. Revealingly, despite a strong relative fall in US soybean prices more than offsetting the tariff, China imported just 67,000 tonnes of US soybeans during the month, compared with 2.9mt in September 2017.

Overall it seems likely that US soybeans will not be heading to China in significant volumes over the next few months, accounting for approximately around 5% of sub-capesize demand in Q4. It is highly unlikely this cargo will find another buyer in such volumes, and most will be destined for US domestic stocks. However, the lower US price is prompting increased shipments to some unlikely destinations such as Brazil, Argentina and Iran.

In September, shipments to non-Chinese destinations were 3.2m tonnes, more than double September 2017 levels. This poses upside demand potential come March/April and should US exports remain unseasonably strong to non-Chinese destinations, this will coincide with the onset of the Latin American export season. For context, the USDA forecasts Brazilian soybean exports in the 2018/19 crop year will be 77mt, up 1.1% yoy.

MSI expects a shift to the seasonality seen in US soybeans exports over the last five to six years, meaning slower trade over the next three months, but greater trade in Q2 as Latin American exports get going. MSI is forecasting supramax spot rates of $12,400 a day in January and $13,300 a day in April.

Meanwhile, US wheat exports have continued to underperform with only 8.6mt exported so far this marketing year (which started in June), down 25% yoy. Despite this the USDA retains its strong export forecast of 27.9mt, up 16% yoy.

MSI expects any increase in shipping volumes to come after the seasonal lull that lasts from October to February, when exports tend to be 10-30% below the average rate for the year. We are expecting strong US wheat trade in the final three months of the trade year, March-May, also supporting freight rates in Q2.

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