As USDA reports go, Tuesday's USDA World Agricultural Supply and Demand Estimates (WASDE) report was a bit of a sleeper with no major surprises revealed. USDA's 550 million bushel estimate of U.S. ending soybean stocks for 2017-18 seemed a little too bullish to be true, as USDA just showed on March 29 that U.S. soybean demand was down 6% from a year ago in the first half of 2017-18. Tuesday's ending stocks estimate means soybean demand will have to be up 8% in the second half of the season just to meet USDA's expectations. That is a tall order after China just proposed a 25% tariff on U.S. soybeans last week.
As we often point out here at DTN, USDA estimates are one thing and the market's own actions are another. But this time around, the two may be closer than most suspect, as a variety of soybean prices are showing strong bullish behavior in the face of troublesome fundamental concerns.
The most surprising bullish behavior is coming from Brazil where the FOB soybean price traded at $11.83 on Wednesday, just one day after Brazil's government agency, CONAB, raised its soybean crop estimate to a record-high 115.0 million metric tons (4.23 billion bushels). USDA followed with the same assessment a few hours later. That $11.83 happens to be the highest such price for Brazil since July 2016 and is 43 cents above the FOB price in New Orleans.
As odd as it is to see a new high price cited along with a record crop estimate, USDA's Oilseeds: World Markets and Trade offered some explanation Tuesday (https://bit.ly/…). USDA reduced its estimate of Brazil's ending soybean stocks from an already tight 49 mb (1.325 mmt) to an even tighter 27 mb (738,000 mt) for the current 2017-18 local season. In other words, the combination of China's insatiable demand and Argentina's drought is squeezing nearly every soybean out of Brazil, and the result is an unusual bull market rally in Brazil at harvest time.
If the U.S. and China were more politically at ease, we would normally expect China to take advantage of cheaper U.S. prices and buy more soybeans from the red, white and blue, but in the current environment, China seems to be doing all it can to avoid the U.S. The question may soon become: How big of a price difference between the U.S. and Brazil does there have to be for China to come back to the U.S. market?
Since the latest report of weekly U.S. export sales for the week ending March 29, USDA has announced 47.5 mb (1.292 mmt) of old-crop soybean sales to either China or unknown destinations. Thursday morning's weekly report from USDA will show more and promises to be interesting.
It is possible that China's government already knew the country would soon need more soybeans from the U.S. on April 4 when they proposed a 25% tariff on U.S. soybeans. It is also fair to wonder if that pressure led China's President Xi Jinping to say on April 11 that China would "protect the lawful (intellectual property) owned by foreign enterprises in China" ("China's Xi announces plans to 'open' China ..." by Everett Rosenfeld and Huileng Tan, CNBC.com, April 10, 2018, at https://cnb.cx/…). Protection of intellectual property was a key complaint of the U.S., which led to the recent spate of increased tariffs, some enacted, but most still proposed.
In spite of China's reluctance, U.S. soybean prices are also showing bullish behavior, especially in the new-crop months when China typically relies on the U.S. for soybeans. Wednesday's closing soybean prices showed the November contract 7 3/4 cents above the March, a bullish sign of commercial willingness to secure new-crop supplies early.
And commercial firms aren't the only ones interested in securing new-crop soybean supplies. On Tuesday and Wednesday, Argentina bought a total of 8.8 million bushels (240,000 mt) of new-crop soybeans from the U.S. -- rare purchases from the world's largest exporter of soybean meal.
It may be difficult to believe that roughly a week after China's tariff news broke, the market for new-crop soybeans is showing this much bullish behavior. But as it now stands, the trend in new-crop soybeans is up as the bullish evidence is outweighing the market's bearish fears.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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