Nov 13 / Ignacio Espinola

Soybean global update: what is next?

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• Trumps triumph is changing the markets dynamics.

• China continues to buy as many soybeans as it can.

• Last WASDE reduced the US production in 2.6%.

• Brazil planting progress has recovered from recent weather events.

Current Scenario

Within one week after the US election, in which Donal Trump got the triumph, markets are trying to adapt to this new reality. As we have mentioned during the last months, China has not stopped it’s buying pace over the last months. As a matter of fact, the Asian giant is still very active in the cash market.

Currency wise, recent Trump triumph has generated a lot of expectations and the DXY index has reflected a growth over the last week from 103.9 to 105.5. The DXY index represents the relative strength of the USD versus other currencies which means that this week the USD has gained force versus other currencies like the Brazilian real, which adds competitiveness to Brazilian soybeans.


Macroeconomy, China and more

Recent movements in the DXY index have created a change in the economics of the FOB parities for beans. As the USD gets stronger, the Brazilian real gets weaker and therefore, the FOB prices from Brazilian origin goods are more attractive for the export market.

It’s been one month since Brazilian FOB soybeans took the first position as the cheapest origin (compared to the US and Argentina). On the same date (15 of October), the DXY crossed the 102-barrier, closing above 103 and it has been closing at 103 or higher since then.

Soybeans FOB Parity

Source: Reuters, Hedgepoint

DXY and USD/BRL

Source: Reuters, Hedgepoint

This year China has been following a stocks policy strategy to prevent any issue in case Donald Trump got reelected. The fear of a possible trade war has made the Chinese government anticipate demand and buy in advance as many soybeans as they can. Numbers wise, with their last 8 M mt imported in October (highest arrival month since the last 5Y) China has totalized 90 M mt of soybeans imported during 2024, which is 90% of their record year, 2020, were they imported 100.3 M mt. We have to remember that China numbers as as per the end of October while export numbers from the origins as US, Brazil or Argentina are updated as per the end of September.

If they continue importing at this pace this will be their record import year. Since Trump got elected and that he is going to take over the government in January, we could expect China rushing the imports over the next 2-3 months and probably they will not decrease the pace until they get some clarity of what is going to be the US strategy and approach with the Asian Giant.

China accumulated imports

Source: China Customs

When we do a deep dive into the numbers of imports and the origins, we can get some interesting data. Comparing to the previous years, the US origin imports where 1.7 M mt, biggest ones in 5 years and it’s the first time since March that we see China importing above 1.5M mt of US origin. We also must consider the previous year they imported only 113k Mt.

For Brazil, numbers are showing a similar pattern. This September has been above the last 5Y numbers, with 8.4 M mt imported versus last year at 6.8 M mt and the same happens for Argentinean origin where China imported 0.6 M mt this month versus 0 in September 2023. Volume wise, it has been the biggest arrival since 2019 where they imported 1M mt from this origin in September.

Finally, if we compare volumes from January to September 2024, China imports from US origin have decreased from 20M to 14M but it has been compensated by an increase of 8M in Brazilian origin, from 54M mt to 62M mt.

China imports by country

Source: China Customs

Weather, crop conditions and WASDE

Even though the last WASDE report has reduced 2.6% the overall production of the US crop to 121.4 M mt due to a decrease in the yields, we are still close to a record crop, similar number than the 2021 crop, 121.5 M mt.

Regarding South America, the USDA did not report any change which means that we are still expecting a production of 169 M mt for Brazil and 51 M for Argentina. Conab released the November report today printing 166.1 Mt for Brazilian soybean production.

Last dry weather events from 1 month ago did not create any major effect in the planting pace and now the crops are at similar levels or above last year’s average. Taking Brazil as an example, the planting progress curve has recovered from the weather events occurred in October and right now its situated in a 69%, same number as 2021 and above last year number, 57%. All indicates that, all going well, there shouldn’t be problems with the planting process and crop development.

Brazil Soybean Planting Progress

Source: Safras

Crush Margins in China

Crush margins in China have had a fast recovery. Taking as a benchmark the crush margins of the Rizhao hub, the crush margins have recovered from -600 yuans, -83.72 USD, to -75 yuans, -10.47 USD, in August which goes in line with the usual seasonality where crush margins recover before the end of the year as the below graph shows.

These numbers could add incentives to the local crushers and the Chinese government to continue importing beans.

China’s crush margin evolution in yuan

Source: Reuters

Putting everything together

To summarize, recent elections in the US have created a blockchain of consequences all over the World. With a stronger USD, other origins such as Brazil or Argentina become cheaper for the export market versus US which could incentivize the physical sales and therefore, the exports . This could affect the export sales in the US but, so far, they are running in a good pace with levels similar to the previous year. On the China side, so far, it seems like they will continue with their policy of building stocks and if we continue at this pace, they will finish the 2024 with their highest import year ever. 

Funds wise, they are still short, below the 5Y average, and over the last 3 COT reports they have changed the tendency and have increased their short position.

Regarding weather, the last WASDE report did not change much in terms of production which means that we are ahead of big crops for US, Brazil and Argentina which should help prices go down due to supply and demand fundamentals. There is not enough demand growth for a ~30M mt increase in production (US, Brazil and Argentina together).

Finally, this week there are 2 reports that could bring more information and changes into the soybeans market, Conab will release its monthly update tomorrow and on Friday we will also have the NOPA report. 

U.S. Soybeans Export Sales in k Mt

Source: USDA - Hedgepoint

Funds Spec Position in Soybean (Lots) – Chicago - CBOT

Source: USDA - Hedgepoint

Written by Ignacio Espinola
ignacio.espinola@hedgepointglobal.com
Reviewed by Thais Italiani
Thais.Italiani@hedgepointglobal.com
www.hedgepointglobal.com

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