China probably can't count on Brazil alone to fulfill its soybean needs as the Asian country snubs U.S. supplies amid the yearlong trade war.

When President Donald Trump kicked off the tit-for-tat tariff battle last year, Brazil had just finished collecting a bumper crop, allowing the world's biggest soy exporter to almost exclusively meet China's voracious demand. But after shipping record volumes and a growing season that saw weather problems, Brazilian inventories are now dwindling and the next harvest is still months away.

That could create a problem for China, the top soy consumer. After Trump escalated the trade spat last week, the Asian nation halted its purchases of American farm goods. That leaves few alternatives to Brazil. Argentina may be one option, but farmers there are currently hoarding beans amid upcoming elections.

There's already evidence of a supply squeeze. Brazil's soybean stockpiles are down about 80% from this time last year, and the country's exports fell 8% through July, while cargoes to China dropped 11%. Price premiums for shipments from the country are on the rise.

Starting from September, Brazil will only have about 15.7 million metric tons of soy left to ship until crop gathering starts in January, according to Daniele Siqueira, an analyst at AgRural consultancy firm. The forecast is based on total available supply, shipment data through July and what's needed for domestic consumption.

That number would fall short of China's typical demand in the period. The country imported about 7 million tons per month from October through December in the past three years, on average, said Vinicius Ito, derivatives vice president at R.J. O'Brien and Associates, citing official Chinese data.

Prices in Brazil are already climbing amid the outlook for tight supplies. The premium paid for soy shipments in September is up about 32% this month. That's as benchmark futures traded in Chicago fell 1.7%.

"Premiums must be adjusted as there's only Brazil in the game at the moment," Ito said in a telephone interview from New York.

Premiums are still well below records reached last year. That's because China's demand has tapered off a bit. The spread of African swine fever in the country is decimating the country's hog herd, decreasing the need for soybeans in livestock feed.

Meanwhile, the pig disease has raised expectations that China's meat imports will continue to increase to fill the supply gap. That's prompting Brazil's protein producers to raise output and could end up meaning more soy is used domestically, leaving less for export.

That raises the specter of more demand for supplies from Argentina, where soy production has bounced back after a crippling drought last year.

But buyers will have a hard time prying supplies away from Argentine farmers, who are hoarding ahead of a presidential election season that kicks off on Aug. 11. They're using the crop, which is priced in dollars, as a hedge against volatility tied to the vote and the possibility of policy upheaval.

"Argentina's farmers will keep hoarding their crops ahead of elections and on the prospects of rising premiums in South America due to stronger Chinese demand," Ito said.



This is article was written by Tatiana Freitas , a reporter for Bloomberg.