China is a major destination for Brazil’s soybean exports, who shipped over 50 million tons of soybeans to China in 2017, equivalent to 40% of its total exports to the Asian country. With the trade war between China and U.S. intensifies successively, Brazil is expected to be one of the beneficiaries in the deadlock since the increased tariff on U.S. soybean may switch China to Brazilian soybean.

The Ideal Alternative Soybean Exporter

In fact, China has been Brazil’s main trade partner since 2009. It’s recorded that China’s demand for Brazilian soybeans has surged by almost 300% in the last eight years. Notably, Brazil supplied over 53% of China’s total soybean imports in the last year (excluding processed soybean meal or oil), although it’s a long journey from the southern reaches of the Brazilian Amazon to China, but it’s a path that many more are set to tread.

Top Exports of Brazil

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Source: OEC

Top Destinations of Brazilian Exports

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Source: OEC

It’s the Opportunity but Also the Challenge

However, this new route to China has been restrained for many elements. The main element is the poor infrastructure, which has severely hindered export growth for the Brazilian crop. Over the past few years, the route from South American to Asia has been rough and expensive because nearly half of the Brazilian soybean was produced in the landlocked state of Mato Grosso, where the trucks have plied the 2,080-kilometer route overland from the country’s interior to its southern ports in the past decade, where ships pick up the cargo and start water transportation. The outdated transportation not only negatively impacted the logistics efficiency and budget but also deprived its price advantage over U.S. counterparts. While Brazil using trucks to transport goods, the rivals like U.S and other South American countries have already taken advantages of developed railway and ship system.

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Good news is that there have been many port terminals constructed in the past five years thanks to the rail and port projects in Amazon region, which had largely improved the transporting efficiency and reduced cost of suppliers. That is to say, Brazil is eligible to get benefits from the tussle.

Another impetus to motivate Brazilian farmers to sell more to China may derive from the agriculture depression from Argentina, the biggest rival of Brazil in South American countries. The country has suffered from a severe drought this year and is predicted to cause at least 20% output reduction. The losses of Argentina further magnify the odds of Brazil in the game.

Except for the opportunities and challenges discussed above, there are more factors could ensure the success of soybeans for years to come: quality and abundant land for cultivation. Growing in the warm climate, Brazilian soybeans are reputed for its high protein level (37%) than other origins, therefore are extremely attractive for livestock raisers. Meanwhile, new crop land is plan to expand to increase the production, for example, Brazil has authorized the sale of 4 million hectares of land in Roraima, and there will be more in the future. If all those lands could be used for soybean cultivation, 13 million metric tons of additional soybeans in annual year would be delivered to table.

It’s clear that because of the U.S – China trade spat, Brazilian soybean exports to China are poised to keep growing. Other South America countries like Paraguay and Uruguay are new alternatives for China too. Stay close with us to get latest reviews and opinions.

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