When China cancelled nearly 20 million bushels of 2012-13 soybeans for delivery in late December, nearby futures market prices tumbled nearly a dollar lower. Prices are still about 30 cents less than they were a month ago, but the pace of China's new-crop purchases has some in the U.S. believing more cancellations are on the way.
The research division of Societe Generale, a New York-based bank serving noncommercial investors, argued in a recent report that the pace of U.S. export sales and inspections suggests that the final export tally for the 2012/13 marketing year is underestimated. In January's supply and demand report, USDA forecast U.S. soybean exports at 1.34 billion bushels.
"To be sure, the pace of old-crop (12/13) U.S. export sales and inspections remain strong, but the resurgence of new-crop (13/14) export sales, particularly to China, over the last 4 weeks (through 17 Jan) gives us pause and raises the risk of further cancellations, or at least subdued U.S. exports once the South American crop begins hitting the global trade," the report said.
The pace of new-crop soybean sales is up nearly 240% year over year, Societe Generale argues, and China's responsible for 75% of it. SG notes that the soybean futures curve remains inverted, and when you strip out the contract months that have expired, the curve hasn't moved much since summer.
"The small movement in existing contracts over the past 6 months, while continuing to highlight tight supplies, is further evidence that end users are only willing to pay so much for supplies before either foregoing additional supplies or turning to forward sales to lock in lower prices," the report states.
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