By Todd Hultman
DTN Analyst
One month ago in this column, I explained how one of the surprises of China's tariff on U.S. soybeans was that U.S. soybean exports actually increased in the month of July, from 85.2 million bushels (mb) in 2017 to 125.9 mb this year. China's imports dropped, as we all expected, but several other countries stepped in and increased their purchases, taking advantage of cheaper prices in the U.S.
It was fair to wonder if July was just a one-time fluke. Would this increased buying continue? And if so, for how long?
The how long question is still open, but thanks to Friday's data from the U.S. Census Bureau, we now know that U.S. soybean exports were up again in August, to 123.7 mb in 2018 from 109.9 mb a year ago. If you thought it was odd that Egypt was the number one buyer of soybeans in July, you might want to sit down. The top buyer of U.S. soybeans in August 2018 was Iran.
Yes, the same Iran that President Donald Trump tweeted to in July in all caps, "NEVER, EVER THREATEN THE UNITED STATES AGAIN OR..." The same Iran that was hit with U.S. sanctions on August 6 and faces more in November. The same Iran that hadn't imported soybeans from the U.S. all year until July. That same Iran stepped up in August and took 15.2 mb of U.S. soybeans, more than it has imported from the U.S. in the past five years combined. What gives?
When July's data was revealed a month ago, many of us wondered if some of the increased exports were finding alternative routes to China. When I asked people who might know, the general consensus was that some U.S. soybeans may have found their way to China via Canada, and some exported to Argentina will end up in China, but a credible source explained to me that it would be difficult to fake shipping certificates that document the origin of where the soybeans came from.
I am no expert in forging certificates, but knowing a little something about human nature, we have to acknowledge the rich incentive to avoid a $2.18 a bushel tariff on U.S. soybeans with an FOB price of $8.72 in New Orleans. Which brings us back to the question, what gives with Iran?
I'm not interested in promoting conspiracy theories, but let's look at some things we do know. After a summer of aggressive exports to China, Brazil's soybean supplies -- now priced $2.48 a bushel above the FOB price in New Orleans -- are showing signs of running thin.
We are now in the October-to-February timeframe when U.S. soybeans are the only significant source available to China. Reports from Chinese officials and surrounding sources however, say China is determined not to buy U.S. soybeans (see Chris Clayton's DTN article, "Diversification, Infrastructure Needed..." https://www.dtnpf.com/…).
Add to this an article by Craig Mellow in Barron's on Friday, "The Next U.S.-China Clash: Iranian Oil" -- https://www.barrons.com/…. Mellow explained how new U.S. sanctions on Iran are set for November 4 with the goal of cutting's Iran's oil exports to zero.
China is a buyer of roughly one-fourth of Iran's crude oil and is not interested in complying with the U.S. sanctions. Is it possible Iran is sweetening the pot for China to keep buying oil by also throwing U.S. soybeans in the deal? Yes, it sounds crazy, and not even Jack Ryan can prove this one, but is that the explanation for Iran's sudden appetite for U.S. soybeans?
USDA's weekly export report shows 7.5 mb of soybeans were exported to Iran in September, which is still more than they took in all of 2017, but only about half of the August total.
Again, I am not interested in spreading rumors -- the world has enough of those and, as I said earlier, the evidence is lacking. But, as far as U.S. soybean demand is concerned, I must point out for the second month in a row that the market has found ways to make up for the loss of China's direct participation.
On Thursday, USDA will provide its next estimate of U.S. soybean ending stocks and the new number could be even higher than the current estimate of 845 mb. DTN readers, however, should keep in mind that the demand side of that equation has yet to be proved and the first two months of post-tariff exports are coming in higher than expected.
The bottom line is we can't prove China is cheating around the tariff any more than USDA can prove new-crop ending stocks of 845 mb. On both counts, the jury is still out.
Todd Hultman can be reached at Todd.Hultman@dtn.com
Follow him on Twitter @ToddHultman
(BE/CZ)
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