Why China is hungry for Brazilian soy
·Brazil's poor infrastructure has long hurt the competitiveness of its soybean exports, but the country's producers will benefit greatly as new rail and port projects come online in the Amazon region. ·Problems for its main soybean export rivals, the United States and Argentina, will strengthen Brazil's trade relations with China this year.
·Brazil's soybean exports to China will increase further because the South American country has an abundance of land suitable for producing soybeans with higher protein levels.
It's a long way from the southern reaches of the Brazilian Amazon to China, but it's a path that many more are set to tread. In the early 2000s, China didn't even figure among Brazil's top five export markets, but in every year since 2009, Beijing has been Brasilia's main trade partner. Today, China is a major market for Brazil's soybean exports, which account for over 40 percent of its total exports to the Asian country. And because of Beijing's trade spat with the United States and ambitious infrastructure investments in Brazil, Brazilian soybean exports to China are poised to keep growing.
Stratfor has been closely following the United States' trade spat with China, which will open opportunities for agricultural exporters such as Brazil to increase their share in the Chinese market. The country is likely to take maximum advantage of U.S. soybean producers' losses to export more of the crop to China.
A New Route to the Orient
China's demand for Brazilian soybeans has increased by almost 300 percent in the last eight years, according to official Chinese figures. Just last year, Brazil supplied over 53 percent of China's total soybean imports (excluding processed soybean meal or oil). The crop has been critical in padding Brazil's coffers; the country posted a $20 billion trade surplus with China last year, due in part to a 40 percent rise in soybean exports.
Even so, Brazil's poor infrastructure has severely hindered export growth for the crop. The traditional route to export soybeans to Asia has been rough and expensive, since more than half of Brazil's soybean production is located in the landlocked state of Mato Grosso. For the past five decades, trucks and trains have plied the same grueling, 2,080-kilometer (1,300-mile) route overland from the country's interior to its southern ports, where ships pick up the cargo and continue the journey. Brazilian producers must contend with transport costs that exceed those of their U.S. counterparts by close to 30 percent, though Brazilian soybeans cost roughly $1 less per metric ton in China than product from the United States. The difference lies in the fact that over 60 percent of Brazil's soybeans travel by truck, while the country's top competitors in soy – the United States and Argentina – rely mainly on rail and ship to transport their beans.
The construction of port terminals in Brazil's Amazon over the last five years will help the situation. Today, roughly 70 percent of Mato Grosso's grain exports transit through southern ports. But thanks to the new terminals, Brazil's soybean producers can avail themselves of a shorter and cheaper route to China. Last year alone, the amount of Brazilian soybean exports through the northern ports rose by 80 percent. Brazil's government also is planning to invite bids for a $4 billion, 1,120-kilometer railway to connect soybean-producing areas in Mato Grosso with the Tajapos River in the Amazon in preparation for an auction later this year. The tender already has attracted interest from foreign companies – including Chinese firms, according to the Shanghai Pengxin Group Co. chairman, who took a trip to Brazil last October. Other multinational grain companies, such as Cargill and Bunge, also have indicated their desire to help build the railway.