China’s buying spree revives export profits for agri traders

Bloomberg September 25 | Updated on September 25, 2020 Published on September 25, 2020

The Asian nation is also counting on more US soybeans since Brazil has run out, and on American corn with Ukraine set for a smaller harvest this season

The world’s largest agricultural commodity traders are making the most money in years exporting everything from soybeans to corn and wheat from American ports. And its mostly thanks to China.

The Asian nation has been on a buying spree, snapping up record amounts of American corn and holding at the start of the season the biggest soybean-import commitments for the time of year in almost three decades. The rush to guarantee loading space — at a time when a key Gulf Coast terminal owned by Archer-Daniels-Midland Co is offline — is sending export margins soaring.

The fat profits are a turnaround for an industry that had got used to thin margins and lower exports due to US President Donald Trumps trade war with China, the world’s top buyer of soybeans. With China still pledging to meet its commitments under the phase one trade deal, ADM expects record US exports of agricultural products in the fourth quarter, helping boost earnings for its traditional agricultural services unit that had struggled for years.

The big export sales of corn and soybeans on the books, of which half or more are to China, along with an ADM export terminal being closed for repair until early 2021 have combined to push Gulf elevation margins to close to the highest levels in the last five years, said Thomas Meierotto, a commodity risk manager at Chicago-based brokerage RJ OBrien & Associates LLC.

Export profits

Agriculture traders measure export profits by looking at the price difference for crops loaded onto ships at Gulf ports and the cost of a barge delivered to New Orleans. The so-called elevation margins — which refer to elevators used to load the grain onto ships for export — for soybeans are at the highest since at least 2016, according to Bloomberg calculations using Commodity3 data, which puts profits at more than 60 cents a bushel. Traders estimate it at about 50 cents.

Export profits are, in some cases, higher than in 2016, when the US shipped a record 36 million tons of soybeans to China. That’s because the Asian nation is also buying a lot of corn, which competes for space in terminals across the country. China is also counting on more US soybeans since Brazil has run out, and on American corn with Ukraine set for a smaller harvest this season.

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“Exporters are using about every facility available at the Gulf, including Texas, as well as Pacific Northwest, the Great Lakes and the East Coast,” said John C Baize, an independent consultant who advises the US Soybean Export Council. In addition, the mid-river barge to ship transfer terminals are being used for corn and soybeans. All are operating at near full capacity.

High soybean price

China’s buying spree has sent soybean futures rallying to pre-trade war levels of more than $10 a bushel in Chicago, while gains in corn were more modest with supplies ample after the Covid-19 slashed demand for ethanol. Still, high prices have already started to cool China’s appetite, with the US Department of Agriculture reporting smaller daily sales.

“The next few weeks are looking pretty favourable for the export window to get these crops from the fields into the river, but just the total volumes that we’ve seen here have been very supportive to prices,” Erin Fitzpatrick, an analyst at Rabobank in St Louis, said in a webinar this week. These current price levels appear to be kind of slowing some of the demand.

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ADM is positive on the performance of its agriculture services unit as volumes and margins progressively improve through the year, with the fourth quarter expected to be the strongest, said Chief Financial Officer Ray Young at in a virtual event earlier this month.

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Published on September 25, 2020
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