As trade tensions mount, China soybean buyers looking for Plan B

BEIJING — Chinese buyers of soybeans, the United States’ biggest agricultural export to the country, are quietly drawing up contingency plans to ensure supplies of critical raw materials in the event of a trade war, sources said.

The moves are the strongest sign yet that businesses in the world’s most populous country are growing worried that critical commodities could get caught up in escalating trade tensions.

At least two trading houses have started buying more rapeseed meal, an alternative ingredient used to make animal feed, in case the oilseed is a target of retaliation by Beijing, sources at the company familiar with the strategies said.

“It is an obvious choice to seek other protein sources. We are buying more rapeseed meal, for example,” said one of the sources.

As an extra layer of protection, his company has also started to include exit clauses in purchase contracts with US suppliers giving them the right to cancel the order if needed.

The second source said their firm was also purchasing more domestic distillers’ dried grains, a by- product of ethanol production used as an animal feed ingredient.

The company is also considering ramping up purchases of Brazilian soybeans.

The sources declined to be named as they are not authorized to speak to the media and would not disclose further details due to the commercial sensitivity of the issue.

Penalties on soybeans would be a powerful weapon in Beijing’s arsenal because they would especially hurt Iowa, a state that backed US President Donald Trump in the 2016 presidential elections. US Ambassador to China Terry Branstad was previously a long-serving governor of the farm state.

The United States shipped more than $ 12 billion worth of soybeans to China last year. China buys two thirds of the beans traded worldwide, mainly from Brazil and the United States.

China’s commerce and agriculture ministries told a delegation of US soy growers last September that soybeans were being considered as a target for retaliatory action in the event of US trade action against Beijing.

On Thursday, Trump announced plans for tariffs on up to $60 billion in Chinese goods for what he says is misappropriation of US intellectual property, moving the world’s two largest economies closer to a trade war.

China showed readiness to retaliate by declaring plans to levy additional duties on up to $3 billion of US imports including fruit and wine in response to US import tariffs on steel and aluminum, which were due to go into effect on Friday.

Jim Sutter, chief executive of the US Soybean Export Council, said it would not be a surprise for Chinese crushers and importers to make emergency plans. —