China’s apparent lack of interest in the upcoming U.S. soybean harvest has put bullish traders on edge and U.S. export prospects in question.
The world’s top soybean buyer has been relatively inactive in the U.S. market for the last several months, a stark contrast with a year ago when China’s buying was rampant.
Last year was an anomaly, though. New-crop U.S. soybean sales in June and July 2020 set records and were more than double average volumes for those months. China and unknown destinations accounted for a particularly high share.
Through July 29, U.S. soybean export sales for the 2021-22 year starting on Sept. 1 totaled 10.6 million tonnes (390 million bushels), and three-fourths were to China or unknown. That is 29% off the year-ago total but 13% above the five-year average.
The previous five years were marred by the U.S.-China trade war and demand problems in China due to hog disease, so shifting that average back by two years would put current sales 2% below normal.
This year’s sales do not have to be as good as a year ago. The U.S. Department of Agriculture predicts 2021-22 U.S. soybean exports at 2.075 billion bushels (56.5 million tonnes). That would be the fourth-best effort on record and down almost 9% from this year’s high.
But China’s July activity was abnormally light. In the four weeks ended July 29, new-crop U.S. soybean sales to China and unknown combined for about 450,000 tonnes, a 14-year low for that period. Last year sales hit 6.6 million tonnes during that time, but the average is closer to 2 million-3 million tonnes.
A daily sale on Thursday of 300,000 tonnes of new-crop soybeans to unknown buyers potentially raised some hope, as many market participants believe that to be China. There has not been a daily new-crop soy sale explicitly to China since June 24.
BARRIERS
Poor soy crush margins in China have likely contributed to the slow pace of U.S. export sales for a few months now. Those margins remain negative and are particularly bad for the time of year, but they are not as bad as in the previous couple of months.
Arrivals from Brazil are slowing, too. Brazil’s soy exports to China topped records in March through May, but June and July shipments were much lighter and closer to average.
Brazilian soybean prices have recently been more competitive than normal with U.S. ones, also cutting in to U.S. business. Additionally, Brazil’s delayed harvest this year shifted China’s import schedule forward, placing less urgency on booking U.S. supplies as early as usual.
Brazil’s export program encroaching on the start of the U.S. campaign is concerning since nearly half of annual U.S. soy exports typically depart between October and December. If those volumes fall short, it puts more pressure on the rest of the year.
Adding to possible U.S. woes, if Brazil’s soybean crop is huge and on time this year, those beans will be plentiful and presumably cheaper than U.S. ones in early 2022 when they are harvested. U.S. exports might then have less time to recover outside of their key shipping window if those volumes fall short.
USDA’s latest prediction is for China’s soy imports in 2021-22 to rise 4% on the year to a new high. But industry participants have their doubts given slow Chinese soymeal demand and a huge profitability decline in the hog sector. Additionally, other feed ingredients like wheat and rice are displacing some soymeal use.
If U.S. soybean exports falter, that could make the U.S. supply situation significantly more comfortable by mid-2022. Predicted U.S. carryout for 2020-21 represents less than 12 days of typical soybean use in China.
Source: Reuters (Reporting by Karen Braun; Editing by Matthew Lewis)