• Bloomberg reported that seven European countries have submitted a letter to EU agriculture ministers saying that the EU must urgently adopt strict new rules such as trade sanctions to halt the demand for biofuels and other agricultural products that are harvested from deforested land. In addition, the seven countries i.e. the Netherlands, Germany, France, the UK, Italy, Denmark and Norway insisted that apart from palm oil, the EU should be focusing on limiting products from natural woodlands and savannahs in temperate regions. The letter was submitted by the Netherlands, which is organising the next meeting of the Amsterdam Declaration Partnership. The latter is a group of countries that seek to address deforestation as part of the Paris climate agreement.

• We believe that this development is negative as it appears that the ban on palm-based biodiesel is getting traction from the major EU countries. Malaysia and Indonesia have said that they will lodge a complaint with the WTO when the EU’s proposal becomes a law. Recently, it was reported that Indonesia is blocking imports of spirits or alcoholic drinks from the EU as retaliation against its proposed ban on palm biodiesel.

• Bloomberg also reported that Brazilian soybean harvest has been 89% completed as at midApril 2019 compared with the five-year average of 85% and 87% a year ago. Soybean harvest is almost completed in the major producing regions of Mato Grosso and Mato Grosso do Sul. We reckon that Brazil is on track in meeting its soybean production projections. According to the USDA, Brazil’s soybean production is expected to be 117mil tonnes in 2018/2019F compared with 122mil tonnes in 2017/2018.

• Platts quoted a consultant from Brazil as saying that Brazil’s soybean exports could fall by 24% YoY in 2018/2019F if the US-China trade talks are successful. The consultant gave two scenarios. First, Brazil’s soybean exports may fall by 12% YoY if China withdraws the 25% tariff on US soybeans. Second, Brazil’s exports may decline by 24% YoY if there is a reversal of tariff barriers on the US-China bilateral trade incentive package. Either way, Brazil is expected to lose its competitive edge if the trade war between the USA and China is resolved.

• Bloomberg said that the African swine disease in China could reshape the global soybean markets for years to come. This is because rebuilding the hog herd in China may take three to five years. An industry expert said that the structure of China’s pork industry makes it nearly impossible to stop the spread of African swine fever. This is because a large part of the production and slaughter are in small family-owned operations. Instead of soybean, China’s buying has switched to pork. An industry consultant said that the USA’s pork exports may jump 20% this year while the EU’s pork shipments may increase by 10% to 15%.

Source: AmInvest Research - 22 Apr 2019