Soybean Weekly Report

By: StoneX Intelligence Brazil, StoneX Intelligence Brazil

Mon, 16 Jan 2023, 19:58

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Crop losses in Argentina support soybean prices in Chicago

Ana Luiza Lodi

analuiza.lodi@stonex.com

On the other hand, the pace of Chinese demand can counterbalance production losses

Bearish drivers

World 2022/23 production estimated above consumption;
Fighting inflation can generate recession;
Possibility of record production in Brazil;
COVID-19 rising in China and signs of economic slowdown.

Bullish drivers

Weather concerns for the 2022/23 crop in South America, already with production cuts in Brazil;
Relaxation of anti-COVID measures in China;
Delayed soybean planting in Argentina and crop cuts;
Increase of mandatory biodiesel blend in Brazil, from April 2023.

Last week, soybean prices rallied in Chicago, with the March contract ending Friday (13) at 1527.75 cents per bushel. In addition to concerns about the South American crop, the release of the USDA report stands out.

The US Department of Agriculture released its monthly supply and demand report, always awaited, but with special emphasis on the review of the US crop, which takes place in January. There was a cut of almost 2 million tonnes in the country's production, from 118.27 million to 116.38 million tonnes. This decline was motivated by a small reduction in the harvested area, but mainly by the fall in average productivity, from 3.38 to 3.33 tonnes per hectare. Even so, it is noteworthy that the estimated final stocks fell marginally, staying at 5.72 tonnes per hectare, since there were cuts on the demand side, especially the expected exports, which went from 55.66 to 54.16 million tonnes.

For the South American crop, the USDA increased Brazilian production by 1 million tonnes, reaching 153 million. It should be noted that, with this adjustment, the Department was well in line with the revised data from CONAB. Also on Thursday, CONAB updated its crop survey, reducing Brazilian production from 153.48 to 152.71 million tonnes, in the face of a small cut in national average productivity due to the lack of rainfall in areas of southern Brazil.

In the case of Argentina, the USDA decreased soybean production by 4 million tonnes, staying at 45.5 million tonnes, a situation that should directly impact the country’s grain shipments, which already tend to be low, with the focus being on exporting meal and oil. Even with this cut, the USDA number is still considerably higher than that of Argentine exchanges, which also made revisions in their estimates. The Rosario Exchange brought the most aggressive adjustment, with a reduction of 12 million tonnes in 2022/23 soybean production in the country, which would be at 37 million tonnes. The Buenos Aires Exchange also made a significant cut of 7 million tonnes, with the expected production reaching 41 million tonnes. In addition to the adverse impacts of lack of rainfall in the country, the Buenos Aires Exchange made a cut of 500,000 hectares in planted area, going to 16.2 million, as a result of the losses recorded due to very high temperatures and the end of the planting window in center regions of the country’s agricultural area.

This smaller Argentine production, although there are still doubts about what the size of the crop will be, begins to raise concern about the global soybean supply and demand balance, highlighting that there is already a more significant movement of imports of Brazilian soybeans by Argentina. With this, Chinese demand should still be at the center of attention.

Weekly intraday—March/23 (CME)

Source: CME. Design: StoneX.

Source: CME. Design: StoneX.

There are concerns about the rate of imports from China, as the country’s economy has shown signs of slowdown and still feels the impacts of the COVID-zero policy, even with the relaxation of measures. The USDA has reduced the Chinese 2022/23 import estimate to 96 million tonnes, a decline of 2 million compared to the previous number. However, in December the country imported 10.56 million tonnes of soybean, the highest volume since June 2021.

Even with this reaction in the last month of 2022, the year’s total stood at 91.1 million, a level lower than that recorded in the previous calendar year, at 96.6 million. On the other hand, it is noteworthy that the country’s meal stocks remain low, which would tend to encourage the grain’s import and crushing, especially after the relaxation of anti-COVID-19 measures. However, animal husbandry is not advancing as expected after recovery from the African swine fever, and feed compositions with less soybean meal use have been adopted.

Therefore, a possibly weaker Chinese demand could alleviate the tight global supply and demand balance resulting from crop losses in Argentina. As such, although the weather and lower production in South America are major bullish factors for prices, since soybean production is extremely concentrated in Brazil, the US and Argentina, demand, which is also very concentrated, will define the soybean balance.

This scenario of doubts about Chinese demand is also related to the reduction of US exports, mentioned earlier. US soybean shipments for 2022/23 reached 29.7 million tonnes by January 5, about 2 million less than a year ago.

On the other hand, US soybean sales are stronger than last year, reaching 44.4 million tonnes, compared to 42.4 million. And China is responsible for this positive difference, having bought 2.7 million tonnes more than in the same period a year earlier. In the week ending January 05, net sales of the 2022/23 US crop stood at 717,400 tonnes, within the range of estimates going from 500,000 to 1.2 million tonnes.

Weekly US export sales (000 tonnes)

Source: USDA. Design: StoneX.

This week, the weather will continue to be key in South America, with forecasts indicating that Argentina should receive little rain and high temperatures, a situation that can further worsen the conditions of the country’s crops.

SPOT PRICES (USD/60kg-bag)

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