China's Sinograin continues US soybean buying despite Panama, price

China’s state-owned firm Sinograin was said to have kept buying US soybeans last week in a move that has confused market participants given the logistics issues on the Panama Canal and the typical dynamic that means Brazilian beans are usually more price competitive.

After a buying spree for US soybeans in November, when the firm was estimated by sources to have bought between 80 and 85 cargoes from the US country, Sinograin has continued snapping up US soybean cargoes this month.

At least a dozen cargoes of US soybeans were estimated to have been bought by the firm last week, according to a Brazil-based source.

Overall, China was said to have bought 25 cargoes of soybeans last week, according to sources, who said private crushers were mainly buying Brazilian soybeans.

There had been speculation that much of Sinograin’s buying in November had been politically motivated given the warming up of China-US relationship that culminated in an official visit of President Xi to California in mid-November, where he held face-to-face talks with US President Joe Biden.

The continuation of Sinograin’s buying activity through the first few weeks of December, however, raised questions among market participants spoken to by Agricensus, especially regarding the buying of cargos billed for the February-March shipment window.

Typically, Brazilian volumes are much more competitive at this point of the year, as the country has just harvested its crop.

Panama

Market participants also questioned why the company had continued to book so many cargoes out of the US Gulf hub considering the severe logistical bottlenecks associated with crossing the Panama Canal due to low water levels.

Premiums for US origin soybeans were seen around 78 c/bu and 155 c/bu higher for February and March shipment compared with Brazilian soybeans last Friday, according to Agricensus assessments.

“Sinograin continues to buy US Gulf beans, lately for March, at prices that are some 85 c/bu higher than Brazilian trades for February, with estimates that some six million tons have been bought for the reserve this season so far,” Charles Sernatinger, head of grain futures at Marex Capital Markets, said.

Such estimates of six million mt bought by Sinograin since the beginning of the marketing year in September would represent about 17% of all soybean volumes committed by US exporters so far.

“No one understands why they are concentrating on Gulf beans, as the Panama Canal is expected to remain a mess for the next six months at least,” Sernatinger said.

The canal’s shipping capacity has been strained by drought for months with authorities announcing last Friday that the number of vessels allowed to cross each day will increase from 22 to 24 from mid-January after an improvement in rainfall levels in November.

That said, this increased throughput is still much lower than the 34-36 vessels per day allowed in normal times.

Despite potential logistics headaches and higher prices, Sinograin needs to turn to US soybeans at the moment if it needs to rotate its reserves.

US and Argentine soybeans typically have a lower oil content compared with Brazil’s, which makes them more suitable for storage purposes and Argentina has an extremely limited soybean availability due to a massive crop loss in 2023.

“Sinograin is required by statute to replace beans rotated out of the reserve within a certain period of time, so they cannot just wait until cheaper Argentine beans come online at the end of April, and they don’t buy Brazilian beans, because they don’t store well for the authority,” said Sernatinger.

GMO license crunch

Meanwhile, there is increasing talk about the Chinese government seemingly tightening the issuance of import and GMO licenses for private crushers.

Some market participants said this could be aimed at helping state firms like Sinograin sell their soy products and buy soybeans overseas with less competition.

Such discussion emerged in late November when industry sources speculated that one reason for the slow issuance could be the need to protect crush margins of large state-owned players, as they can sell their soybean-related products more efficiently with less competition from private crushers if the latter was having difficulties importing the crop.

It is not uncommon for the government to tighten issuance of the license or customs inspections for imported soybeans, said a China-based crusher.

“The working theory is that the government is making it hard for the privates to buy and unload beans presently to keep them out of the market, and not compete with Sinograin’s reserve buying. But it is making life miserable for the private crushers,” said Sernatinger.