Analysis Grains
Only US benefits from Brazilian soy tax
A recent change in the way soybean exports are taxed is causing panic in the Brazilian market. Because the sector can claim less tax advantage, the country is a lot less competitive. Especially the United States can benefit from this, which is welcome as soybean exports there are struggling this season. The only question is how long the current tax rules will hold.
In early June, Brazilian President Lula da Silva signed a law lowering the tax discount in the soybean and corn sector. The market reacted strongly to the change. Major trading houses such as ADM and Amaggi withdrew from negotiations for new soybean contracts.
Brazilian exporters are unable to pass on the tax to soybean growers, making importers victims of the new policy. The association for vegetable oil producers, Abiove, had already warned before the implementation that any bit of profit would be eaten up by the tax, and that prediction has come true. To ensure profit, almost the entire Brazilian soy sector was forced to raise prices.
United States takes advantage of demand
Market expectations are that the United States will benefit most from the situation. This is more than welcome for the country, as American soybean exports have been struggling despite record harvests. Since the trade wars under Trump, China has hardly been importing soybeans from the United States. Instead, Brazil has become the main supplier.
Until last year, the United States managed to sell their soybeans reasonably well in other markets, keeping exports at a good level. In 2023, the United States exported $29.15 billion worth of soybeans. Compared to the previous year, the export value decreased by 21.4%, mainly due to a significant drop in global soybean prices. When compared to exports in previous years, the 2023 export is quite strong. The export value increased by 10.6% compared to 2021, and the difference with exports from the two years before is even greater.
However, it seems that the market is not looking too good this year. More recent data are not yet reflected in the statistics, but some information is already known about the first imports of the lowest harvest. In early May, the country had only exported 890,000 tons of soybeans, Reuters reports. This is a decrease of almost 67% compared to the same period in 2023.
China resumes imports from the US
A renewed interest from China can mean a lot for the American export position. Traditionally, the United States was the main supplier of soybeans to China. Since the trade wars between the two superpowers, China has been quite reluctant to buy agricultural products like soybeans. Now that Brazilian exporters are pricing themselves out of the market, there is renewed interest in American soybeans from the Asian country. Chinese importers have purchased 208,000 tons of American soybeans, according to data from the US Department of Agriculture USDA. This is remarkable as China has been ignoring the United States. Such a large order has not been seen since January.
Lack of enthusiasm
However, the question remains how long the current tax will remain in place. The tax was introduced by decree. In Brazil, presidential decrees are valid for only 120 days unless parliament turns them into law. It is unclear if parliament needs to get involved in this issue at all, as Brazilian Finance Minister Fernando Haddad is considering scrapping the tax.
