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Photographer: Daniel Acker/Bloomberg Photographer: Daniel Acker/Bloomberg

Chinese companies are expected to cancel most of the remaining soybeans they have committed to buy from the U.S. in the year ending Aug. 31 once the extra tariff on U.S. imports takes effect from Friday.

China is the world’s top soybean buyer and has yet to take delivery of about 1.14 million metric tons of U.S. soybeans booked for the current marketing year, according to U.S. Department of Agriculture data. The USDA reported last week that China had resold some 123,000 tons of committed deliveries to Bangladesh and Iran.

Soybeans are a key flash-point in the worsening trade relations between the U.S. and China after Beijing said it would levy tariffs on imports starting July 6 in retaliation against a raft of duties imposed by the Trump administration. By focusing on U.S. agricultural produce, as well as raw materials such as coal, China is targeting the rural communities in states that voted for Trump in 2016.

“These shipments will be either canceled or resold if extra tariffs are imposed,” said Gao Yanbin, an investment manager with agriculture investment firm Shanghai Shenkai Investment Co. “The tariff rate is too high which will make crushers lose money.”

Buy in Advance China stocked up on Brazilian soy ahead of the tariffs Source: China National Grain and Oils Information Center

Some cargoes will get through because shipments destined for state reserves are free from tariffs, Gao said. China holds unspecified volumes of state reserves of both domestic and imported soybeans. China had been forecast to buy 97 million tons of soybeans this marketing year.

Analysts don’t expect many soy cargoes from the U.S. to arrive after the July 6 deadline as buyers have already stopped shipments. The Peak Pegasus bulk carrier will arrive before the deadline while the Aeolian Fortune and Kea have already arrived, according to Monica Tu, an analyst with Shanghai JC Intelligence Co.

Chinese companies have contracted to increase purchases from Brazil since April and soy inventories at major crushers are currently at the highest in years, according to the China National Grain and Oils Information Center. That’s likely to change later in the year.

“There will be a supply deficit from the fourth quarter as crushers won’t have enough supplies if they don’t take U.S. soybeans,” Gao said. Brazilian supplies fall to seasonal lows in the first and fourth quarters -- a period when China’s imports are normally dominated by the U.S. The CNGOIC expects Chinese companies may need to import at least 10 million tons from the U.S. when South American supplies run down.

“If China intends to keep their crushing plant operating in the fourth quarter and early first quarter they will need to import U.S. soybeans even with a 25 percent tariff,” as there are no other options to cover the shortage, said Paul Burke, North Asia regional director with the U.S. Soybean Export Council. China imported about 25 million tons from the U.S. in the fourth quarter of 2017 and the first quarter of 2018, according to customs data.

China will have the “world’s most expensive soybeans,” which may boost domestic prices of soybean meal and soybean oil, according to Jiang Boheng, an analyst with Luzheng Futures Co.

Premiums for Brazilian soybeans for August shipment were nearly 70 percent higher than that for U.S., according to the CNGOIC. They are at more than 300 cents a bushel over benchmark Chicago soy future prices arriving in China, according to the CNGOIC.

— With assistance by Shuping Niu