China to Speed Brazil Corn Imports Amid Ukraine War, US Tensions

(Bloomberg) — China is taking steps to accelerate imports of Brazilian corn, bringing on a new supplier of the grain at a time when the war in Ukraine has disrupted trade and tensions with the US are soaring.

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Beijing will temporarily waive a key clause which paves the way for Brazil, the biggest exporter behind the US, to ship corn to China in the coming months, according to people familiar with the matter. This follows a deal in May that guarantees Brazil access to the world’s top grains market over the long term.

That agreement, which took years to conclude due to phytosanitary concerns, requires the Brazilian government to provide guidance to farmers on chemical application and crop management prior to seeding to ensure growers take measures to avoid diseases. China will waive this condition for the current season, said the people, some of whom asked not to be identified because they’re not authorized to speak publicly. If the rule still applied, it would hinder shipments as it was imposed after the start of planting.

Corn producers and exporters were informed of China’s decision by the Brazilian agriculture ministry in a meeting on August 5, according to Sergio Mendes, head of the Associação Nacional dos Exportadores de Cereais, a grain shippers’ association, and Glauber Silveira, executive director at the Associação Brasileira dos Produtores de Milho, a farmers’ group.

Both the Brazilian and Chinese agriculture ministries didn’t respond to requests for comment from Bloomberg News.

China has been seeking to diversify its corn imports, of which about 70% came from the US and 30% from Ukraine last year. The move to boost purchases from Brazil comes as Ukrainian supplies have been cut off from the world market by Russia’s invasion and as tensions between China and the US rise, fueled most recently by the visit of US House Speaker Nancy Pelosi to Taiwan earlier this month.

China already buys most of Brazil’s soybeans, another feed ingredient for its massive hog herd. The Asian nation has a history of shifting away from US agricultural supplies at a time of escalating tensions, such as in 2018-19 during a trade war, and has a broader goal to reduce reliance on a single supplier.

Smooth the Path

“It’s pretty clear Beijing is looking to smooth the path for Brazilian corn in order to replace corn that it would typically source from Ukraine,” said Even Pay, an analyst at consultancy Trivium China in Beijing.

“Beijing is worried about its high degree of dependency on the US for corn and other agricultural commodities,” Pay added. “It’s extremely unlikely that Beijing would be looking to cut off US corn imports. Beijing also wants to keep some kind of a floor under the relationship.”

China’s state grain traders are negotiating the first corn cargoes from Brazil, said some of the people, who asked not to be named. Supplies will likely come from Brazil’s 2021-22 crop and are set to arrive later this year, they said.

Despite the waiver, China hasn’t lowered the bar on sanitary requirements as the nation made it clear that cargoes with any disease listed as intolerable by local authorities will be turned away, said Mendes, head of the exporter group known as Anec. But it’s not demanding measures before the seeding anymore.

“The corn will need to be free of plagues anyway,” Mendes said by phone. First shipments should be made in the second half of the year, he added.

“Even though this crop ended up far from its potential because of dry weather, we have plenty of corn to export,” Silveira said by phone. Brazilian corn is about $17 a ton cheaper than US prices, according to Commodity3 data.

Brazil is expected to reap 114.7 million tons of corn this season, the national supply company Conab said Thursday. The harvest is almost finished.

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