BIMCO: Shipping Hurt by Soya Bean Trades

Combined soya bean exports from Brazil and the US are down 7.8% in the first eight months of this year, as the main Brazilian soya bean export season disappointed. 

The fall in volumes from the two countries has also led to an 8.5% drop from last year in the tonne mile demand generated by the two dominant soya bean exporters.

In particular falling exports from Brazil have hurt the shipping industry, with accumulated soya bean exports from Brazil in the first eight months of this year 7.8 million tonnes lower than the first eight months of 2018. This has resulted in tonne mile demand from Brazilian exports falling by 12.9% or 83.7 billion tonne miles.

Up, but from a low base
US soya bean exports in August 2019 were the highest they have ever been in the month of August reaching 4.5 million tonnes, 1.4 million tonnes higher than exports in August 2018. This increase has pulled the US out of negative year-on-year growth which it had been in during the first seven months, with accumulated exports now 2.5% higher than they were at this time last year and tonne mile demand rising to growth of 6.5% or 12.3 billion tonne miles. This growth does not make up for the loss in tonne mile demand from Brazil, which exports higher volumes of soya beans than the US.

With the high exports in August, US exports are now higher than they were at the same stage of 2017, before the trade war began to affect exports. Despite this good news, the outcome of the year will depend heavily on the last four months, traditionally the US’ peak soya bean export season.

”The coming months will determine the outcome of the year for seaborne US soya bean exports, with early signs that exports since 1st September seem to be following the usual pattern of increasing through September ahead of a peak in late October and November. This would be good news for the shipping industry, but it is currently to early to call the season a success,” says Peter Sand, BIMCO’s Chief Shipping Analyst.

US exports to China already higher so far in 2019 than the whole of 2018
US exports of soya beans to China in the first 8 months of 2019 stand at 13 million tonnes, higher than the 8.2 million tonnes exported during the whole of 2018. In the first eight months of 2018, the US had exported 7.9 million tonnes of soya beans to China. Despite this high offseason growth in 2019, there is still a long way to go if exports are to match levels experienced before the trade war: in 2017 the US exported 31.7 million tonnes of soya beans to China.

The fact that exports so far this year are higher than those in the whole of 2018, are testament to a disastrous end to 2018 rather than a brilliant 2019. In the last 4 months of 2018 the US exported only 339,700 tonnes of soya beans to China, less than 2% of what was exported in the last 4 months of 2017. Comparing 2019 with 2017, gives growth of 14.1% in the first eight months for the US to China soya bean trade.

”During the course of this trade war an easing of tensions has often been rumoured, each time bringing with it hope that the situation would soon be resolved, only to end up with a further deterioration of the relationship between the US and China.

The higher levels of offseason exports to China are good news for the shipping industry, but should not be taken to mean that things are back to the status quo, there may still be many twists and turns ahead. Once relations between two trading partners have gotten this bad, it takes a long time to restore business as usual,” says Peter Sand.

Trade war isn’t the only factor influencing Chinese soya bean imports
According to Chinese customs statistics, their total soya bean imports in the first eight months of the year are down 11.3% at 46.9 million tonnes.

As well as the trade war impacting Chinese soya bean imports, lower Chinese demand for soya beans has been one of the results of the massive culling of pigs that has taken place in China in response to the spread of African Swine Flu. Soya beans grown within China are primarily processed into food for human consumption, whereas imported soya beans go towards feeding livestock as well as making soya bean oil.

Therefore imported soya beans are the first to suffer when there are fewer pigs to feed. ”Lower Chinese demand as a result of the African Swine Flu mean that even without the effects of tariffs, seaborne volumes of soya beans imported by the Chinese may not return to levels seen in 2017 for some years,” says Peter Sand.

Brazil more than covered the shortfall from the US in 2018
Looking only at Brazil, soya bean exports in 2018 reached 83.3 million tonnes, generating 847.3 billion tonne miles, with growth of 22.2% and 22.6% respectively compared to 2017. Brazil benefited from the increased demand from China for non-US soya beans, with its off season exports in particular higher than usual. While in the first half of 2018 growth stood at 5.2%, Brazil exported 37 million tonnes in the second half of 2018 more than twice what was exported in the last 6 months of 2017, which boosted full year export growth up to 22.2%.

”What matters most to the global shipping industry is the tonne mile demand generated by the trades and although volumes were lower in the second half of 2018 than 2017, increased exports from Brazil managed to limit some of the damage that could otherwise have been inflicted on the dry bulk shipping industry,” says Peter Sand.

Although the trade war greatly damaged US soya bean exports to China in 2018, combined volumes to all destinations exported by Brazil and the US in 2018 were 4.1% higher than those in 2017 at 125.6 million tonnes, generating 1,146.2 billion tonne miles, up 2.8% from 2017. US soya bean exports fell by 10.2 million tonnes in 2018 compared to 2017, but an extra 15.1 million tonnes out of Brazil in 2018 compared to 2017, meant that combined exports from the two countries grew.

In the first eight months of 2018 tonne mile demand from the two countries had grown by 10.3%. At the time Brazilian exports were up by 12.5% in tonne miles on the back of a strong export season while US exports were up 3.1%. The growth in the US soon faltered with total tonne mile demand from US soya bean exports in 2018 down 29.5% compared to 2017, demonstrating the importance of the first months of the exporting season. US exports in volumes the last four months of the year were 43.6% lower than in the same period in 2017.

Brazil and the US are by far the largest soya bean exporters in the world and in 2018 accounted for 86.1% of total seaborne soya bean trade (source: Clarksons). The two have distinct soya bean marketing seasons reflecting the differences between the northern and southern hemisphere growing season. Brazil’s main season runs from March through to June, whereas the US peaks later in the year: between September and December.

In 2017, which was the last full year unaffected by the trade war, Brazil exported 58.1% of its soya beans in the four months from March to June with the US also exporting more than half (54.4%) of its soya beans in the four months of its peak season.