By Karl Plume

CHICAGO (Reuters) – China's Sinograin has bought nearly 500,000 metric tons of U.S. soybeans this week for shipment in March and April, paying more for U.S. supplies for state reserves rather than buying cheaper Brazilian beans, two U.S. traders familiar with the deals said.

China is the world's top soy buyer and a crucial market for both U.S. and Brazilian farmers, who supply the bulk of China's imports.

The industry is monitoring sales and trade flows to China closely ahead of President-elect Donald Trump's inauguration on Jan. 20, due to concerns that another round of tit-for-tat tariffs could erode the value of U.S. soybeans.

Soy prices hit four-year lows this week on trade tensions and amid high U.S. stockpiles, with a looming record harvest in Brazil.

Sinograin's purchases this week follow agreements China made last week for around 750,000 tons for shipment from January to March. These are modest volumes for Sinograin, China's state-run grains trader and strategic reserves manager, which typically buys millions of tons at a time, according to traders.

Traders noted that Sinograin prefers U.S. beans for storage because they are less prone to spoilage compared to Brazilian beans.

Sinograin did not immediately respond to requests for comment on Thursday. However, market analysts speculated that the reason for paying more for U.S. beans instead of cheaper Brazilian beans abundant during the March-April delivery period was tied to quality concerns.

Sinograin's recent purchases were at around 90 cents a bushel over Chicago Board of Trade March futures and 80 cents over May futures on a free-on-board (FOB) basis, which is about 80 cents to $1 above Brazilian FOB prices for that period.

These purchases occur as overall Chinese agricultural imports have slowed, and Brazil, China's top soy supplier, is prepping to harvest a record crop. Poor processing margins for turning soy into animal feed and oil are discouraging imports, and tariff threats by Trump have intensified tensions between the two economic powers.

U.S. exporters are rushing to ship soybeans to China before Brazilian supplies hit the market early next year and before Trump takes office. Imports by private crushers may face tariffs imposed on U.S. supplies by China in response to Trump's potential duties, making soybeans more expensive. However, state-run importers are more likely to receive tariff exemptions, according to traders.

The recent data from the U.S. Department of Agriculture indicates that Chinese purchases of the current U.S. soybean crop for shipment through next summer are about 6% behind last year, while forecasts suggest a mere 2.6% drop in overall Chinese soybean imports.

Traders suggested that these purchases could be seen as an olive branch to trade hawks in the incoming U.S. administration, but market analysts argue they are primarily aimed at replenishing strategic reserves, as the volumes are insufficient for significant political gestures.

Dan Basse, president of Chicago-based AgResource Co, stated, "If the Chinese do it for political appeasement it's millions of metric tons, not a few tons here and there.” He pointed out that the recent smaller purchases contrast with larger deals interpreted as political signals, such as the approximately 3 million metric tons purchased in a single week before the APEC summit in November 2023.

The price premium for U.S. beans likely indicates that China seeks to top off its reserves, suggesting this buying spree may be short-lived, according to Basse.

Volumes in China's state reserves are closely guarded, although supplies are regularly auctioned off to domestic crushers and then replenished. Basse added, "When South America is a dollar a bushel cheaper than the United States, it's hard to keep doing this."

Unlike private Chinese crushers, who are more price-sensitive, Sinograin focuses more on soybean quality, as explained by a veteran soy industry executive in China. He remarked, "Brazil beans are so easily degraded in storage, never being considered for the reserve program.” He emphasized that the quantity of purchases will indicate whether they stem from concerns over a possible trade war.