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Corn+Soybean Digest

Brazil Bets on China

Napoleon supposedly once said, “China is a sleeping giant, and when it awakens the world will tremble.”

If the world didn't tremble early this summer as a result of China's rejection of thousands of tons of Brazilian soybeans, world soybean prices certainly did.

Chinese buyers had closed deals for Brazilian soybeans in January and February of this year for May and June delivery. But when soy prices hit record highs in June, the Chinese looked for reasons to get out of their purchase contracts with Brazil, which sends one in every five rows of soybeans it produces to China.

Looking to cut record prices, the Chinese found a reason to reject Brazilian soybeans. Fungicide-treated seed beans were mixed in with loads of commodity soybeans for human consumption. The fungicide in question was Carboxin, and the Chinese rejected loads of Brazilian soybeans containing 0.06% fungicide-treated soybeans, when commonly accepted standards allow up to 0.2%.

In rough terms, the international standard of acceptance of fungicide-treated beans is up to three fungicide-treated beans/kilogram (2.2 lbs.) Samples from rejected loads of Brazilian soybeans indicated the presence of one or fewer fungicide-treated beans per kilogram. Fungicide-treated beans are typically seed beans mixed in with commodity bean loads.

One reason farmers may have pawned off some seed beans as commodity beans is that Brazil still has temporarily — but not definitively — approved the planting and sale of biotech beans.

The theory goes that Brazilian producers bought (fungicide-treated) conventional seed when they thought the government would not approve biotech seed. Then, when a provisional law was issued allowing biotech soy to be planted and harvested last year, many producers switched to biotech beans, leaving unused conventional seed in storage until harvest.

Meanwhile, world soybean prices dropped 20% when the Chinese rejected Brazilian soybeans. This sent Brazil into a frenzy of activity. First the Brazilian government announced a zero-tolerance policy for Carboxin. Then specialists realized zero was an impossible threshold to reach, so they set the limit at one seed per kilogram.

Naturally, nobody (but the Chinese) was happy. Producers like Blairo Maggi, a Brazilian state governor and soybean farmer, said Brazil should file a WTO case since China was accepting higher amounts of fungicide-treated beans from competitors like the U.S. and Argentina.

Government officials were disappointed because, as the agreement stood, the cost of testing for fungicides below internationally-accepted norms fell on Brazil rather than on China. One expert claims the fungicide debacle cost Brazil dearly in lower prices and lost trade.

In the end, the possibility of future sales overcomes past differences — even differences in the recent past.

Charles Tang, president of the Brazil-China Chamber of Industry and Commerce said recently, “The strategic and commercial partnership with China is one of the most promising of the century. The whole world looks upon it with great attention, with many hoping it doesn't work out, and others looking upon it with a certain degree of jealousy.”

So coveted is the ongoing relationship with the Asian giant that up to four separate Chinese trade missions were feted in Brazil when they came to look at ports. For example, the Chinese are considering building their own storage facilities at Brazil's second-largest port, Paranaguá.

Now Chinese entities are busy investing in Brazilian infrastructure. Those infrastructure investments include the North-South Railroad that would link the newest soybean expansion areas with southern ports, as well as the proposed railway to the Pacific that would link existing railroad track in Brazil, Argentina, Paraguay, Bolivia, Peru and Chile, cutting at least 2,000 miles off the trip from Brazil's Port of Santos to China.

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