The USDA report this Friday the 12th presented a bearish outlook for soybeans, with global and US ending inventories estimated to exceed trade expectations.
The soybean market is facing strong downward pressure, highlighted by the lack of a free floor in CBOT (Chicago Board of Trade) prices. The rolling soybean contract hit its lowest level since December 2021, posting a sharp decline that places it significantly below major moving averages. Soybeans for March 2024 delivery, in particular, reached a minimum in the last 7 monthsclosing Friday at the $12.23 support level.
Between June and August 2023, prices saw a notable recovery in Chicago. This is attributed to shrinking inventories in the US and strong demand for soybean oil, driven by the need to supply the biofuels market.
With the arrival of the 2023/24 harvest the downward trend resumed. Currently, prices are back to the level seen in May 2023, when Brazil was trying to sell large amounts of shares.
As, Soybeans ended 2023 down -14.9%, soybean meal -19.3% and soybean oil -25%. That is, the price adjustment has been very important, soybeans have seen the largest price decline since 2014 in 2023, soybean meal since 2015 and soybean oil since 2008.
The dynamics in the soybean market present a significant shift, with China showing increasing interest in Argentine exports, while the US positions itself as a viable option due to the lack of seasonal supply from Brazil.
Argentina as an attractive origin for China
Since November, Argentina has been drafting soybean export sales notes for the 2023/24 cycle. The price competitiveness of Argentine soybeans in China has driven export commitments which already reach 1 million tonnes and are expected to continue to increase. Two key factors contribute to this trend.
First of all, the Argentine government plans to increase taxes on exporting soybean flour and oil, encourage the export of non-industrialized products.
Secondly, a significant resumption of production of soybeans in Argentina, which will strengthen its position as an international competitor.
United States due to lack of supply from Brazil
Brazil has made notable progress in its export program for the 2022/23 cycle The United States could benefit satisfying potential remaining demand for some time to come, especially if prices continue to decline. The lack of seasonal supply from Brazil creates an opportunity for the United States to meet market needs, solidifying its position as an alternative supplier.
In summary, China’s preference for Argentina as the origin of soybeans highlights the South American country’s competitiveness in the global market. Meanwhile, the United States is strategically positioned to meet persistent demand, taking advantage of the lack of seasonal supply from Brazil and solidifying its presence in the international soybean trade.
Outlook to consider in the soybean market
Despite cuts to Brazilian soybean production in 2023/24, global soybean supply remains balanced due to increased production from Argentina, the United States and other countries. This compensation failed to counteract the downward pressure on prices.
The lack of a clear floor at the CBOT suggests the soybean market faces significant challenges traders can remain cautious until signs of stabilization are identified.
Tight milling margins pose a challenge to industry profitability, and companies in the industry may have to address it further difficulties if prices continue to fall.
The funds look at 5 key factors in the market
• Climate in Brazil: There has been an improvement in the climate in the central region of Brazil, eliminating the worst possible scenario of extreme heat with little precipitation.
• Weather in Argentina: The climatic conditions in Argentina are very favorable, which guarantees the recovery of the exportable balance of corn and soy products.
• China’s growth: The economic growth situation in China is a point of attention. Furthermore, the failure to reactivate the Chinese consumption impulse is another noteworthy element.
• Chinese Consumer Sentiment: Chinese consumer confidence remains at historic lows, mainly due to the downward spiral in real estate prices, which has a significant impact on their personal wealth.
• The impact of production in different regions, trade policies and climatic conditions They should continue to be monitored, as these factors could also influence the future direction of soybean prices.
Source: Clarin
