China returns to buying soybeans from the USA after tax changes in Brazil: 208 thousand tons already acquired!

China resumes purchasing soybeans from the US after the Lula government's MP: After the recent Provisional Measure (MP) from the Lula government, China resumed purchasing soybeans from the US. Understand how this MP impacts commodity prices and the competitiveness of Brazilian companies.

China resumes purchase of US soybeans after tax change in Brazil: Chinese importers, considered the largest buyers of commodities in the world, have purchased at least 208 thousand tons of US soybeans since the tax change in Brazil was announced on June 4, according to data from the US Department of Agriculture. These are the first transactions of their kind since January, marking China's return to the American soybean market. The fiscal change in Brazil impacted commodity prices, altering the competitiveness of Brazilian companies and benefiting American exports.

Why is China buying US soybeans again?

China's recent soybean purchases highlight the difficulties facing President Luiz Inácio Lula da Silva will face to approve the so-called Compensation MP. This provisional measure limits the ability of Brazil's commodity exporters and 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.

According to Victor Martins, risk manager for Latin America at Amius, China is once again buying soy from the US because buyers in Brazil cannot pass on these higher costs to the farmer. They are paying more because offers in Brazil are reduced. 

Abiove, an industry group representing major agricultural traders including the famous ABCDs – representing Archer-Daniels-Midland, Bunge, Cargill and Louis Dreyfus – had previously warned that the move would reduce profits for commodity processors.

Some traders also withdrew new supplies of commodities such as soybeans and corn from the market. OThe USA also sold 152 thousand tons of corn to unknown destinations in the period, a movement that some traders also attributed to the tax change.

Understand how the Provisional Measure works

A Provisional Measure (MP) 1.227 tax on exports to compensate for the maintenance of payroll tax relief in 17 sectors of the Brazilian economy. This rate increases the price of Brazilian soybeans. This is because producers, who previously did not have to spend on exports, will now have to consider them. With the approval of the MP, producers must pass on the cost of the fee to the final price of the product, which will fall on consumers.

This is where China and the USA enter. As Brazilian soybeans have become more expensive, China is once again purchasing soybeans from the USA, as the North Americans do not impose an export tax on the same product. The MP from Lula's government became the target of criticism.

This time, the commerce, services, biodiesel and health sectors criticized the Executive's text and dubbed it the “MP of the End of the World”. The National Union of Commerce and Service Entities (Unecs) expressed deep concern and repudiation of the MP and stated that the measure harms the PIS/Cofins credit compensation regime.

Unecs comments on new commodities MP

The provisional measure, which is why China is once again purchasing soybeans from the US, has the force of law and comes into force immediately. However, it needs to 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 investment and harming the country's economic recovery.

A Brazilian Association of Vegetable Oil Industries (Abiove), the Association of Biofuel Producers of Brazil (Aprobio) and the Brazilian Union of Biodiesel and Biokerosene (Ubrabio) also criticized the MP in a joint note.