One month ago, I explained how U.S. soybean prices had quickly turned from a bullish outlook to a bearish one with little warning. Prices have had a bit of a roller-coaster ride since then but are close to the same level they were when I first wrote about the increasingly bearish situation. (https://www.dtnpf.com/…)
As for the fundamental outlook, the situation is even more bearish today, as the U.S. is running out of time and losing its opportunity to make the easiest soybean sales of the year to the world's largest customer.
On Thursday, Dec. 2, USDA said U.S. soybean export commitments totaled 1.366 billion bushels (bb), down 29% from a year ago. Of those sales, 749 million bushels (mb) are marked for China, a 31% smaller amount than last year at this time. If the U.S. finished out the season at this pace, exports would end 487 mb less than USDA's current estimate of 2.050 bb. Cheaper soybean prices would stimulate an increase in domestic crush, but ending soybean stocks would finish significantly higher than USDA's current estimate of 340 mb.
China is the world's most aggressive buyer of soybeans, and there have been years when China's appetite was large enough to make large purchases from the U.S., while also absorbing a record harvest from Brazil. Two recent examples of that were last season and in 2017-18.
In both of those seasons, however, soybean meal prices on China's Dalian exchange were moving higher, showing signs of rising demand within China. That is not the case this year. In late August, spot soybean meal prices on China's Dalian exchange fell below their 100-day average and, by early November, had reached their lowest prices in a year.
Something has caused China's demand for soybean meal to weaken significantly this fall, and it is difficult to say what it is. We have heard the reports of soybean crush plants being closed this fall in an effort to conserve scarce electricity. I also suspect China's hog herd is still contending with African swine fever. Thursday's export sales report showed China was an active buyer of pork again, taking 12,400 metric tons in the latest week.
In the larger picture, there is no doubt China will require increasing amounts of soybeans in future years as their economy and living standards continue to grow. For now, China's temporary weakening of demand is unfortunately happening during the very months when U.S. exporters have their best shot to make hay.
As we speak, Brazil's next soybean crop is off to a good start and is on track for an early record harvest in 2022. The crop will need cooperative weather to finish, but the market already has Brazil's FOB soybean price for January within 27 cents of the U.S. Gulf price.
Brazil's transportation costs to China are typically 25 cents to 45 cents less than U.S. costs from the Gulf, meaning Brazil is already a competitive source of soybeans in January. In February, Brazil's FOB price is 39 cents a bushel cheaper than U.S. soybeans, even before the transportation cost advantage is included. U.S. soybean sales are not far away from becoming much more difficult to make.
January soybeans fell clearly below their 100-day average on Aug. 19 and closed at $12.44 1/4 Thursday, Dec. 2. Technically, the trend remains down, but it is impressive that prices recovered quickly from Tuesday's 24 1/4-cent drop. If there is a bullish surprise lurking, it is difficult to say what it could be.
For now, it is fair to say USDA's export estimate of 2.050 bb is too high, and the path of least resistance for soybean prices remains down.
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Comments above are for educational purposes only and are not meant as specific trade recommendations. The buying and selling of grain or grain futures or options involve substantial risk and are not suitable for everyone.
Todd Hultman can be reached at Todd.Hultman@dtn.com
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