Brazil FOB price outruns China delivered price as market 'overheats'

The outright price for soybeans loaded on an FOB basis from Brazil has surpassed the delivered price on a CFR basis into China, squeezing margins for exporters as strong Chinese buying over the last week drives up origin premiums and feeds into firmer freight costs.

Based on Agricensus calculations, the price of soybeans for FOB Santos on an October shipment basis was last traded at 140 c/bu over the November future, which is equivalent to $413.92/mt.

That is more than $5/mt higher than the outright delivered price of $408.50/mt valued on CFR China basis for the same shipment.

Normally, the CFR China soybean price is more than the sum of the FOB price plus the corresponding freight cost.

But this relationship has reversed as China snapped up around 30 cargoes last week to cover demand, of which between 20-25 of them were bought in just two days.

Freight costs have also surged as Chinese importers booked soybean cargoes mostly for deliveries between September and November this year, Agricensus trade data showed.

One freight indication suggested the cost between Brazil and North China jumped to $39.50/mt last Friday – the highest level in four weeks – while several sources believe the rate had reached “at least” $40/mt.

“The market [is] overheated,” said one shipbroker.

“There's too much demand from China,” one soybean trader at a major trading house said.

Apart from freight costs, FOB Santos basis premiums also jumped to the highest level since mid-November last year with October shipments last offered at 140 c/bu over November futures, in line with the traded price last Friday.

“Some trading houses were piling up [long] positions… and FOB was pushed higher by them [selling],” a second soybean trader commented, adding that trading houses were moving offers higher as Chinese importers sped up their buying last week.

China's soybean buying soared in the middle of last week as crushers realised a potential supply deficit could appear for September and October shipments.

The sector had also been waiting for further signals from trade talks between the US and China before buying soybeans from the US, but hope diminished as the talks came to a halt with both countries confronting each other with threats of further tariffs last week.