Trade war favors Brazil, says SLC CEO, who has a positive outlook for grains.
The benefit would come especially from strong demand from China, the world's largest importer of soybeans.
By Roberto Samora
SAO PAULO (Reuters) - The trade war triggered by US President Donald Trump, generating tariff retaliations from other countries, is favorable to Brazil, stated Aurélio Pavinato, CEO of SLC Agrícola, one of the largest grain and cotton producing companies in Brazil, this Thursday.
"The trade war continues to benefit Brazilian agribusiness and Brazil as a reliable supplier for customers demanding food," he highlighted during a teleconference to discuss the quarterly results released the previous day.
The benefit would come especially from strong demand from China, the world's largest importer of soybeans. He noted that this time, China has larger stockpiles and is less dependent on the US compared to the previous trade war.
Pavinato estimated that China will import 80 million tons from Brazil and 21 million tons from the US in 2025.
"China's dependence on US food imports has drastically reduced. If China imports zero soybeans from the United States, it will not go hungry; it can import from Brazil and Argentina," he added.
He also commented that China is no longer dependent on the US in the corn segment, as its production has been increasing and it now has the possibility of importing from Brazil, something that was not possible during the previous trade war in 2018.
Regarding cotton, he emphasized, Brazil will soon be able to supply all of China's import demand, "and China will no longer need the US."
The interdependence between China and the US has "diminished significantly," he stated.
"The question is: will there be a new agreement (between the US and China) linked to agriculture (as happened in the previous trade war)? We believe not; there may be an agreement, but the cornerstone will not be agriculture. The 2025 trade war is much more geopolitical than commercial, and that's what it seems to be suggesting."
"A trade agreement like the one that happened during Trump's first term might not be beneficial for Brazil; it could have resulted in China importing more from the US, but we don't believe that's likely to happen."
CHINA STOCKPILING
Because of the impacts of the US trade war with China, which imposed a 10% tariff on US soybeans, "we have a positive outlook on demand for Brazilian production," said Pavinato.
The CEO of SLC commented that the global soybean stock-to-consumption ratio is higher, at 30%, compared to a "normal" 28%.
But he noted that stocks are higher in China, which currently has 43 million tons of soybeans.
"Are soybean stocks high? Yes, but that's within China; globally, stocks aren't high. So this is further evidence reinforcing our non-bearish outlook for soybeans," he emphasized.
Pavinato pointed out that the trade war is already strengthening the premiums paid for Brazilian soybeans relative to the benchmark price in the Chicago market.
He said the premium has the potential to rise 10%, precisely the rate applied by China against US soybeans.
"I'm talking about a dollar (per bushel) more than the normal premium; with a bumper crop in Brazil, the premium would be zero or negative, but now it's already up 50 to 60 cents, and it has the potential to rise 10%, which is the tariff applied by China," he said.
Corn prices have remained higher because the global stock-to-consumption ratio is lower, Pavinato stated, estimating a new deficit in global production.
This indirectly supports global soybean prices, as soybeans compete with corn for land in several countries.
"We believe that prices are at low levels today, especially for soybeans, corn not so much, they should hold... and why shouldn't there be a rebound with the weather market?", he questioned, referring to the times when prices fluctuate during the planting and development season in the US.
In the case of cotton, he stated that Trump's policies bring "uncertainties" that impact the demand for the final product, such as clothing, which affects the price of the commodity.
"Our view is that the price of cotton is low, below production costs in the main countries, and this uncertainty regarding demand has put pressure on prices," he stated, concluding that Brazil, being more competitive in production, tends to take advantage of this scenario.
(By Roberto Samora)
