China’s Sudden Currency Move Latest Issue for U.S. Soy Exporters
On August 11 China’s central bank lowered its official guidance rate by nearly 2% to its lowest point in nearly three years, resulting in imports to the world’s top commodities buyer becoming costlier overnight.
This move poses the latest challenge to U.S. soybean exporters, who are already dealing with enormous supply competition from South America, a strong U.S. dollar, record global stocks, and the slowest sales in seven years. U.S. soybean exports for the 2015/16 marketing year, which began in September, were 47% lower than a year before, according to the U.S. Department of Agriculture (USDA), and new-crop U.S. soybean sales to China totaled only 3.27 million tons by the end of July – 67% lower than a year ago.
Concerns are spreading that other countries could follow China’s lead and do the same, or that this could be only the first devaluation on China’s part. So far however, all of the top-ten global U.S. soybean buyers including Indonesia, Japan, and South Korea have said they are not looking to enact trade-war policies.
China has already imported a record amount of soybeans from South America this summer, and the country is expected to buy a record 76 million tons this year, according to Chinese customs data, largely due to high demand for soybean meal from the swine sector, however ongoing uncertainty regarding possible upcoming currency moves is keeping many importers cautious.
As Argentina is flooded with soybeans, and Brazil’s real has seen a 30% decline against the dollar this year, competition from South America is expected to continue into the fourth quarter this year – a time period usually dominated by new-crop U.S. soybeans.