Soybean prices in Chicago were low for much of the week, in anticipation of the USDA supply and demand report. This report was released on 12/08 and brought low numbers for the oilseed. However, oilseed prices, contradictorily, rose from that day onwards, once again breaking the ceiling of US$ 9.00/bushel. The main reason was China's strong presence on the purchasing end.
Analysis by the International Center for Economic Analysis and Agricultural Market Studies.
Thus, this Thursday (13th) the first month quoted closed the day at US$ 9.07/bushel, against US$ 8.80 a week earlier. The USDA report brought the following numbers for 2020/21:
1) Harvest projection in the USA of 120.4 million tons, against the 112.5 indicated in July, confirming the trend also pointed out in this space that there could be an increase in final production in that country;
2) Ending stocks in the USA therefore rise to 16.6 million tons, against 11.6 million in July;
3) The average price for US soybean producers drops to US$ 8.35/bushel, against US$ 8.55 on average a year earlier;
4) Soybean production in Brazil and Argentina was maintained at 131 million and 53.5 million tons respectively;
5) Imports from China rose to 99 million tons, compared to 96 million in the previous report;
6) World soybean production jumps to 370.4 million tons, gaining 8 million tons compared to what was indicated in July;
7) World ending stocks would now stand at 95.4 million tons, compared to 95.1 million in July and 95.8 million the previous year.
In practice, the report is bearish and could put pressure on prices in the coming weeks, especially when the harvest begins. But everything will depend on the intensity of Chinese purchases. For now, they are very strong, keeping Chicago at its current levels. Even so, the volume purchased by the Chinese remains below what was agreed with the USA at the time of the signing of Phase One of the trade agreement between the two countries, on January 15th of this year.
News is circulating that China would be exchanging loads of Brazilian soy, purchased months ago, for US soy, which is currently cheaper. (cf. Bloomberg) If this is confirmed and becomes more constant, there will be downward pressure on premiums in Brazilian ports and on the price of oilseeds in the country in general soon ahead. That said, some operators consider that such a move may not change the national price framework because the cost of diverting ships would be too expensive.
According to Agrinvest, Brazil no longer has soybeans from the last harvest to export, leaving the expectation of the 2021 harvest starting next February. If Brazil closes total foreign sales at 82 million tons in this current harvest, 80% would have gone to China. This represents 65.6 million tons. There would be 30.4 million tons left for the Chinese to reach the 96 million tons projected by the USDA for this year 2019/20. These will be supplied by the USA and Argentina. Chinese demand is recovering quickly due to the recovery of local pig herds after the African swine fever that struck there.
In July alone, China imported 10.1 million tons of soybeans and in the first quarter of 2020 it already increased its imports of corn, another important component in animal feed, by 27%. “Brazil had record soybean production this year, while the real depreciated. Brazilian grains are cheap and crushing margins are large, so crushers have been purchasing very actively,” Xie Huilan, an analyst at agricultural consultancy Cofeed, told Reuters International. (cf. Agricultural News) Furthermore, the exchange rate issue also promoted a reduction in Brazilian logistics expenses, increasing Brazil's competitiveness compared to the USA. For example: a
internal logistics of a farm in the Middle North of Mato Grosso, even inside the ship, gave US$ 90.00 per ton, when the dollar was R$ 4.00. At the peak, with this dollar hitting R$ 5.90/R$ 6.00, it fell to US$ 60.00. In other words, it was US$ 30.00 per ton, practically US$ 1.00 per bushel, which Brazil gained from competitiveness at the destination. That's why Brazilian soybeans were the most preferred this year. (cf. Agrinvest)
For now, there would be no room for a reduction in Chinese purchases of soybeans. China would still need to buy between 25 and 30 million tons this year to remain supplied. On the other hand, soybean crops in the US continue to improve in quality. According to the USDA, until 09/08, they reached 74% between good and excellent, with a gain of one percentage point over the previous week. Of the total, 92% were in the flowering phase and 75% were in pod formation.
Here in Brazil, the exchange rate once again devalued the Real, which exceeded R$ 5.40 per dollar during the week, even approaching R$ 5.50 at times. As a result, and in the face of high premiums (above US$ 2.00/bushel in many places, on the selling side), prices rose again. Thus, the Gaucho counter closed at an average of R$ 113.38/bag, while in other markets prices were between R$ 106.50 and R$ 107.50 in Paraná; R$ 109.00 in Campo Novo do Parecis (MT); R$ 122.00 at CIF Maracaju (MS); R$ 98.50 in Rio Verde (GO); and R$ 105.00/bag in Luís Eduardo Magalhães (BA).
With the increasing reduction in the supply of soybeans in Brazil, monthly exports fall. Anec predicts that external sales of the oilseed, in August, will fall to 6.5 million tons, against 6.7 million in the projection at the beginning of the month. In terms of soybean meal, the month of August is expected to register 1.63 million tons, against 1.49 million previously predicted.
If these volumes are confirmed, in the first eight months of the year Brazil will export 76.3 million tons of soybeans (+35.2% over the same period last year) and 11.6 million tons of soybean meal ( +10.4%). In turn, Conab revised its estimates for the last Brazilian harvest, increasing the final volume of harvested soybeans to 120.9 million tons. At the same time, it estimates exports at 82 million tons, in line with what traders in the Brazilian market indicate.
On the other hand, soybean prices are so good that producers in Mato Grosso have already started selling soybeans from the 2021/22 harvest in advance, which will only be planted in September of next year. Sales, by the end of July, would have reached 1,29% of the total harvest expected for that year. In historical terms, this commercialization should only begin next December. For the 2020/21 harvest (the next one), which will be sown starting next month, advance sales in Mato Grosso already reach 50.5% of the projected total, against 23.5% in the historical average (cf. Imea). Finally, according to the Esalq/BM&FBovespa and CEPEA/ESALQ indicators, taking the port of Paranaguá (PR) as a reference, soybean prices continue to break historical records, including in real terms. On 08/06, for example, such indicators reached the highest levels since November 2012, in real terms (based on the IGP-DI of Jul/20). At the time, the current real price closed at R$ 124.31/bag, compared to R$ 117.17/bag in November 2012. Given strong exports, Brazilian milling industries continue to have difficulties purchasing soybeans, with a lot of competition and increased imports from Paraguay and Argentina. At the same time, faced with internal grinding difficulties, the production of soybean oil for biodiesel is decreasing, a fact that is leading the government to announce a provisional reduction in the mixture of this biodiesel with diesel from petroleum, changing it from 12% to 10% .
More than 70% of Brazilian biodiesel is made from soybean oil.
Source: agrolink
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