Brazil soybean premiums plummet as Chinese demand evaporates

27.08.2018

Soybean premiums in the paper Paranagua market have fallen 20% since the start of August as Chinese buyers halt their buying spree after purchasing nearly 85% of the country's total exports since the start of the year, leaving little remaining volumes to buy, sources told Agricensus.

Beans in the paper Paranagua market for September loading were offered down to 185 cents over the September contract, down half a dollar since the start of the month, making a panamax cargo out of Santos $30/mt cheaper since the start of the month at $381/mt Thursday.

“The soybeans paper market is empty today,” one broker said, adding that China CIF offers for Brazilian beans have been falling as Chinese traders have taken a step back over the past week.

A second Brazil-based broker said that buyers had retreated further since low-level trade talks between the US and China were announced, while the slide in cash premiums has been accelerated by a depreciating real – now down 23% against the US dollar since the start of the year.

“As the possibility of trade agreement is diminished, short-term fundamentals in China are weak and crush margins in China are negative. Vessel buying is not going to be large,” a China-based trader said.

Offers for Brazilian beans delivered during October into mainland China, on a CFR basis, have fallen from 327 cents over the November contract a week ago to 280 cents over the November contract as of Friday morning, meaning a cargo delivered into China now costs $416/mt, nearly $17/mt cheaper in just one week.

Since the start of the year, Chinese buyers have stepped up their buying, picking up nearly 85% of Brazil’s record bean exports, compared to 82% last year, amounting to about 50 million mt exported to China by the end of August.

That has seen Chinese stocks swell to an all-time high of nearly 10 million mt.

However, that is now coming to a halt as the Brazilian crop reaches its seasonal end, with about 15 million mt still to export until the end of the year, and already 90% of that volume on the books.

Where to go next?

China now hits a dry period between the end of the Brazil crop and the arrival of fresh US beans in September, which Chinese importers will try to avoid buying for as long as the 25% import tariff remains.

“Chinese buyers are not likely to buy US beans before any resolution between the two countries, even if the domestic soybean price exceeds the after-tax cost of importing US beans,” the China-based importer said.

The record soybean stocks in China could bridge about five weeks of demand, at the current crush rate, while China could increase meal imports from elsewhere in the world.

However, the next Brazilian bean harvest, which is set for a record high, will only come to market in February, and China will need about 35-40 million mt of beans during that five-month gap.

“The lack of US supply in China could lead to a supply deficit which will subsequently increase soymeal price and improve crush margin in China,” a China-based importer said.

If this case happens, US beans could start coming into China as the profit can cover the after-tax cost.

However, a China-based analyst said supply in China is sufficient and the potential deficiency of supply does not exist, as “alternative sources are plenty”.


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