Global Soy Trade Accelerates—Opportunity for U.S. Exports?
The last year has seen a sharp turnaround in Chinese soy imports. USDA projects that for the 2019 marketing year, China will import 98 MMT of soybeans, a huge jump from 2018 when soy purchases totaled only 82 MMT. Although official data are not out for 2019, it seems like the 98 MMT mark will be close; Chinese imports through July are at 87.3 MMT and the month of July saw 10 MMT of imports, nearly all from Brazil.
Indeed, the expansion in Chinese soy imports has been done largely without many trades for U.S. beans in 2019. Chinese purchases of U.S. soy in 2019 were mostly done early in the season and then dried up after January as Chinese buyers turned to Brazil. Although Brazil had a record-large soy crop of 126 MMT, they likely will surpass USDA’s 93.5 MMT with exports through July already at 87.6 MMT. What it likely means is Brazil’s exportable supplies from September to February will be severely constrained prior to their harvest. Beginning stocks as of September 1 are projected to be 19.1 MMT versus 32.75 MMT in the previous year. With exports likely 4 MMT higher, that puts carryout as of September 1 closer to 15 MMT, which would barely be enough to keep domestic needs of 3 MMT/month supplied for five months. As such, it seems likely that the U.S. takes a dominant role in international trade for the next six months. Indeed, in a rare move, the Brazil government is mulling temporary removals of soy and corn import tariffs—likely due to oversupplying the world market in the last six months.
Here are the key drivers we see playing out in the coming months for soybeans:
China has already bought 13.5 MMT of 2020 U.S. soybeans, but that is likely a drop in the bucket for what they will need from the U.S. To reach a 98 MMT total for the year, they will likely need to buy 6 MMT/month from the U.S. for the first six months of the marketing year (September-February), and for the last half of the marketing year they would round out their needs with 10 MMT/month from South America. Those monthly volumes would get them to the 98 MMT target for the year. As such, total purchases from the U.S. will likely grow from their current mark of 13.5 MMT to 36 MMT rather quickly.
Brazil will have no export supplies through February. Not only should that assure trade to China, but it will also help the U.S. be the dominant supplier to other soy-importing countries, which, unlike China, buy mostly hand to mouth. Therefore, those deals will likely begin to accumulate over the coming months.
The economics of international prices also work in favor of U.S. exports. Focusing on the lowest cost CIF value into China, U.S. soybeans can land there at nearly $1 a bushel less than Brazil beans. A similar advantage exists for forward contracts out to December. As such, it seems likely that U.S. prices have room to move higher and still keep trade flows robust.
But this window of opportunity is not wide. With both Brazil and Argentina expected to ratchet up production sharply in the coming year, this means fresh competition hits the market in February.
FBN's take on what it means for the farmer
Brazil has overshot its export program, and China will need to acquire sizable bean volumes from U.S. origin between now and February. FBN looks for this to be a stimulus to keep soy prices gaining over the coming months. We look for a legitimate shot at $10 bean futures in the coming months and an outside shot of $10.50.
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