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China Resumes Soybean Purchases From The U.S. After Lula Government MP: Following the recent Provisional Measure (MP) from the Lula government, China has resumed purchasing soybeans from the U.S. Understand how this MP impacts commodity prices and the competitiveness of Brazilian companies.
China Resumes Soybean Purchases From The U.S. After Fiscal Change in Brazil: Chinese importers, considered the largest purchasers of commodities in the world, have acquired at least 208 thousand tons of soybeans from the U.S. since the fiscal change in Brazil was announced on June 4, according to data from the U.S. Department of Agriculture. These are the first transactions of this type since January, marking China’s return to the American soybean market. The fiscal change in Brazil has affected commodity prices, altering the competitiveness of Brazilian companies and benefiting American exports.
Why Is China Resuming Soybean Purchases From The U.S.?
China’s recent soybean purchases highlight the challenges that President Luiz Inácio Lula da Silva will face in approving the so-called Compensation MP. This provisional measure limits the ability of Brazilian exporters and commodity processors to monetize certain tax credits.
The Minister of Finance, Fernando Haddad, is already considering withdrawing the proposal after facing strong opposition from companies and Congress, according to sources familiar with the matter. This resistance reflects the complexity of balancing Brazil’s international competitiveness with the need for internal fiscal adjustments.
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According to Victor Martins, risk manager for Latin America at Amius, China is resuming soybean purchases from the U.S. because buyers in Brazil cannot pass these higher costs onto farmers. They are paying more because offers in Brazil are reduced.
The Abiove, an industrial group representing major agricultural traders, including the renowned ABCDs – representing Archer-Daniels-Midland, Bunge, Cargill, and Louis Dreyfus – had already warned that the measure would reduce profits for commodity processors.
Some traders have also withdrawn new offers of commodities such as soybeans and corn from the market. The U.S. also sold 152 thousand tons of corn to unknown destinations during this period, a move that some traders also attributed to the tax change.
Understand How The Provisional Measure Works
The Provisional Measure (MP) 1.227 taxes exports to offset the maintenance of the payroll exemption for 17 sectors of the Brazilian economy. This tax increases the price of Brazilian soybeans. This is because producers, who previously had no export costs, will now have to consider them. With the approval of the MP, producers should pass the cost of the tax onto the final price of the product, which will fall on consumers.
It is in this scenario that China and the U.S. come into play. As Brazilian soybeans have become more expensive, China resumes purchasing soybeans from the U.S., since Americans do not impose an export tax on the same product. Lula’s government MP has become the target of criticism.
This time, the trade, services, biodiesel, and health sectors criticized the text from the Executive and nicknamed it the “MP of The End of The World.” The National Union of Trade and Service Entities (Unecs) expressed deep concern and rejection of the MP and stated that the measure harms the PIS/Cofins credit compensation regime.
Unecs Remarks On The New Commodities MP
The provisional measure, the reason why China is resuming soybean purchases from the U.S., has the force of law and takes effect immediately. However, it must be approved by the National Congress within 120 days. The text is already facing resistance among parliamentarians. According to Unecs, these measures represent a continuous attack on the competitiveness of Brazilian companies and sustainable economic development.
Instead of promoting a stable and predictable business environment, the government has taken actions that increase the tax burden and legal uncertainty, discouraging investments and hindering the country’s economic recovery.
The Brazilian Association of Vegetable Oil Industries (Abiove), the Brazilian Association of Biofuels Producers (Aprobio), and the Brazilian Union of Biodiesel and Biojet Fuel (Ubrabio) also criticized the MP in a joint statement.
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