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China's Switch To Russia's Soybeans No Match For U.S. Farmers

Russian exports to grow even after U.S., China trade war.

MOSCOW, Russia -- In October, Russian President Vladimir Putin said that China is ready to buy as many soybeans as Russia can produce.

Should farmers from both Americas start to worry?

Russia’s Exports Build

Russian soybean exports to China have been growing rapidly in recent years. In fact, in five years they increased 51 times. But such pace mainly reflects the fact that a few years ago there were almost no exports.

In the 2013/14 season (October/September) Russia shipped only 548,000 bushels (15,000 metric tons) of beans to China, in 2018/19 the volume grew to 28 million bushels (763,000 mt). For the largest soybean world importer, this volume represents less than 1% of its total imports.

Russian shipments began years before Mach 2018, when Donald Trump started a trade war with Beijing. Chinese phytosanitary authorities approved supplies of soybeans from the Russian Far East in December 2015 and the 2014/15 marketing year became the fist season when Russia sold some noticeable volumes to the country (11.5 million bushels, 314,000 mt). Before that farmers from the region were selling beans to other, very distant parts of Russia, like the Volga Valley region which is 4,400 miles away (7,000 km) or even farther west. China is just nearby, across the border from the largest producing region – Amur.

Russian exports are likely to grow even if the trade war is over. However, it’s not going to happen fast. In previous years, trade flows just changed their destination from Russia to China. To increase exports further, Russian Far East needs to grow production. It’s not easy. In fact, in the last five years, planting area in the region and crops were relatively stable, around 3.0 to 3.75 million acres (1.2-1.5 mln ha) and 48 to 55 million bushels (1.3-1.8 MMT).

Russia’s Hurdles

Poor infrastructure and lack of labor force are the main obstacles to further growth of crop production in the Far East. For large Russian agribusinesses, which are mainly based in the European part of the country, control of such distant operations is another issue.

However, as we know from our own experience, more and more businesses are considering setting up operations in the region. The land values are relatively low (but not as low as a few years ago), and climate conditions are good (Heilongjiang province, No. 1 Chinese soybean grower, is just across the border). In addition to China, you have a few big consumers close by – South Korea and Japan. So, we expect to see more investors coming to the region and solving those issues, gradually.

U.S. To Remain China’s Go To

Right now, I would say soybeans, or more generally crops from Russian Far East (don’t forget about corn, which is already being sold to Japan, albeit in small volumes!) are not a big problem if you are a farmer from Northern or Southern America. I doubt that exports from the region could exceed 70 to 90 million bushels (2-2.5 MMT) medium term. However, longer term, the region has a good chance to become the next export agricultural powerhouse, which will heat up the competition in South-Eastern Asia.

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Andrey Sizov is the managing editor of The Sizov Report on the Black Sea grain market.

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