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Soybean Weekly Report

By: StoneX Intelligence Brazil, StoneX Intelligence Brazil

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Lack of rain in the US opens space for soybean rise  
 
Ana Luiza Lodi
Market Intelligence Specialist  
analuiza.lodi@stonex.com
US weather expected to be drier until around June 10  
Bearish drivers
  • Global production for 2023/24 estimated much above consumption, according to USDA; 
  • Still weak economic indicators;
  • Absolute production record in Brazil and lack of storage;
  • Fast pace of US planting;
  • Chances of El Niño increase from July.
 
Bullish drivers
  • Relaxation of anti-Covid measures in China; 
  • Considerable crop losses in Argentina due to the weather; 
  • Chinese crush margins are more positive;
  • Increase in mandatory biodiesel blending in Brazil;
  • Drier US weather forecast until around June 10.

Last week, soybean quotes in Chicago accumulated gains, with the contract for August closing Friday at 1261 cents per bushel.  

Monday (22) was a day of significant increases, amid low trading volume and after the previous week's losses. On Tuesday (23), CBOT prices fell again, due to concerns about demand and the good outlook for supply. However, the forecasts of a drier weather in the US in the coming weeks gave support to prices again, as the weather for the US crop will be in the spotlight in the coming months.  

Forecasts indicate below-normal rainfall until around June 10 across much of the Midwest, and higher temperatures in the northern part of the US. Only the grain-producing regions near the Plains are expected to experience more significant moisture in the period.  

In any case, it is still too early to say that the country's crops will suffer any damage. Besides the fact that rainfall volumes may vary a lot, being much or little below normal, this is not yet the most critical period for US crops. Lack of moisture can cause damage at any stage of development, but it is during the grain filling period, between July and August, that a drought tends to result in significant damage to the US crop.  

The 2023/24 US season has started with great optimism, since the chances of an El Niño from July onwards are high. The phenomenon tends to reduce the chances of prolonged droughts during the country's summer and is overall favorable for soybean and corn yields. This positive outlook is one of the factors that has weighed on soybean prices in recent months.  

US planting remains ahead of schedule on the national average, reaching 66% on Sunday, compared to a five-year average of 52%. Only North Dakota continues to lag behind, having registered 20%, while the average was 33%. However, the state has made significant progress recently and there is still time for a recovery. 

Weekly intraday - August/23 (CME)

 
image-20230529204737-6
image-20230529204744-7
 
Source: CME. Design: StoneX.

On the demand side, it is noteworthy that China's crushing margin remains positive and with an upward bias, with the increase in prices of meal and oil in the country. On the other hand, the negative margins of the pork industry are a concern, since this is the main herd in the country, representing almost half of the world total.  

For now, Chinese purchases of soybeans continue to occur, with a preference for the Brazilian product, and in terms of accumulated imports for crop-year 2022/23, they are stronger. However, the slower progress of the economy in the country and the world as a whole continues to worry and ends up weighing on prices.  

Since soybeans are a commodity linked to nutrition, there is greater resilience, but even so, a slower progress of demand, compared to what was expected before, at a time when supply is not facing major challenges, ends up limiting the space for a price increase.  

Even with a drop of more than 50% in Argentina and doubts about how meal and oil supply will be, as the country focuses on grain processing and by-product exports, the record production in Brazil, at 157.7 million tonnes, according to StoneX, more than offset the losses in neighbor country Argentina.  

In the US, the net export sales of the 2022/23 crop in the week ended May 18 reached 115,000 tonnes, a volume in the range expected by the market, between cancellations of 50,000 tonnes and sales of 300,000. In accumulated terms, sales are still far behind, reaching 50.8 million tonnes, against 59.4 million at this time last year. The USDA is estimating lower shipments for this cycle at 54.84 million tonnes, but the pace of sales is a concern.  

For the 2023/24 crop, sales were also not encouraging, standing at only 1,100 tonnes, while estimates ranged from 100,000 to 675,000.  

Weekly US export sales (000 tonnes)
image-20230529204655-3
Source: USDA. Design: StoneX.
In the week that begins, it is noteworthy that Thursday (01) will see the release of Brazilian total soybean exports in May. The ship lineup data indicate a volume around 15 million tonnes for the month. 
Spot prices (USD/60kg-bag)
 
image-20230529204720-5
 
 
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