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Brazil Soybean Prices Surge as U.S.-China Trade Spat Deepens

By Dominique Patton and Ana Mano

BEIJING/SAO PAULO, March 27 (Reuters) - Chinese importers are paying record harvest-time premiums for Brazilian soybeans as they look to secure supplies amid concern that shipments from the United States may be disrupted by a trade war between Washington and Beijing.

China buys about 60 percent of globally traded soybeans to feed the world's biggest livestock industry. Brazil supplied half of its imports last year while the United States supplied around a third.

But Beijing has threatened to target soybeans, the United States' biggest agricultural export, in retaliation for measures taken by President Donald Trump's administration aimed at improving terms of trade for the United States.

Demand for beans from top exporter Brazil pushed up premiums on concern that China could curb U.S. purchases. Premiums paid for beans from Brazil's Paranagua port topped $1 per bushel above benchmark international prices, according to Esalq, an agricultural market research body at the University of Sao Paulo.

That was the highest spot premium on record for March, a time when the incoming flood of newly harvested soybeans in Brazil typically weakens premiums.

The premium was up over a third from the 65 cents a bushel buyers were paying on March 1 for April shipments of soy from Paranagua, one of the top grain export terminals in Brazil.

A year ago, Paranagua premiums for spot shipments were just 36 cents over futures, according to Thomson Reuters Eikon data.

"The market is going crazy," said a Beijing-based trader, who declined to be identified as he is not authorized to talk to media.

"Some buyers are still buying due to the good crush margins here, but they're feeling very uncomfortable about the high price," he added.

Buying more Brazilian beans is one of several contingency plans that Chinese buyers are executing to ensure they have the animal feed they need despite the threat of a disruption of supply from the United States.

China's crushers have increasingly favoured Brazilian soybeans over American beans because of their higher protein and oil levels.

Soybeans shipped in April from the Brazilian port of Paranaguá were priced about $414 per tonne, compared with U.S. soybeans shipped out of the Gulf of Mexico at $403 per ton, according to traders and Thomson Reuters data.

"(There's a) lack of interest coming for U.S. beans presently despite being the cheapest thing in town," one U.S. trader said.

Brazilian officials have previously said they could see increased Chinese demand for Brazilian soy due to growing trade tension between China and the United States.

Brazil has already benefited from an increase in demand for its corn from Mexico, where buyers are also concerned that trade negotiations with the United States could impact U.S. corn exports to its southern neighbor.

The sharp rise in soybean premiums suggests Brazilian exporters are already reaping benefits even before China has taken any action to curb imports from its second-largest supplier.

Drought in neighbouring Argentina, the world's third-largest soy exporter, is driving up global soy prices and stoking demand for beans from elsewhere.

Rain during harvesting in neighboring Brazil may have also slowed soybean trading, contributing to higher prices, said traders.

Strong demand for biodiesel in Brazil has boosted soy crush margins, raising demand from local crushers and reducing the volume of soybeans available for export, said one Brazil-based trader.

Mato Grosso-based farmer Elso Pozzobon believes some growers may be holding on to their stockpiles in anticipation that prices could rise even further if Sino-U.S. trade tensions escalate.

"Farmers who are not in need of immediate cash are holding on to their beans," he said.


(Reporting by Dominique Patton in Beijing, Ana Mano and Roberto Samora in Sao Paulo and Karl Plume and Michael Hirtzer in Chicago Editing by Simon Webb and Matthew Lewis)

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