Brazil’s soybeans in rare switch as prices undercut US in Dec.

Brazilian soybeans have become more competitive into the main Chinese market than US beans this week - a rare dynamic at this time of the year - as basis premiums in the South American country have plunged amid heavy selling pressure, Agricensus data shows.

From August to December, US beans are typically more competitive than those sourced from Brazil as the North American harvest is at full steam while Brazil is typically in its off-season.

According to Agricensus’ CFR China price assessments, however, December soybean cargoes out of Brazil dropped from 375 c/bu on October 27 to 320 c/bu on November 3.

Meanwhile, CFR China premiums for beans out of US Gulf ports fell from 355 c/bu to 342 c/bu during the same time frame.

This means that, as of Wednesday, Brazilian beans were $10/mt cheaper than their US counterpart into the Chinese market on a flat price, delivered basis.

Premiums in both origins fell over the week, pressured by declining freight rates and, in the US case, by a continuing normalisation of elevation margins after disruptions brought about by Hurricane Ida.

“Freight rates plunged recently, heavily weighing on FOB premiums basis, as well as the CFR premiums,” a China-based trader said.

However, in Brazil such a steep decline in premiums was unexpected, especially considering the country is now off-season, with new crop beans not expected to hit the market before early-2022.

“Brazil is facing selling pressures now. The harvest is expected to be ahead of schedule, so they want to clear the old crops as soon as possible,” a China-based analyst working in a trading house told Agricensus.

Corn is also undergoing a similar dynamic, with late season supply making the country competitive again despite relatively poor production and a slow export pace.

“There is a good crop on the way,” a broker from Brazil said, adding that farmers want to make room to stock new crop beans as the expected bumper crop starts to be lifted from the fields in early-2022.

“I believe the fact that we have not exported large corn volumes this year also contributes as many trading houses have ‘take-or-pay’ railway agreements that they need to fulfil,” another market source told Agricensus.

“These traders had the intention to fulfil these agreements with corn, but since volumes were insufficient, they are now lowering bean premiums to secure the demand they need,” the source added.

“On top of these factors, the depreciation of the Brazilian real against the US dollar makes prices more attractive in Brazil,” Agrural’s Daniele Siqueira said.

Siqueira added that “the good planting pace and prospects of a bumper 2021/22 crop may pressure prices further ahead, which has also favoured old crop sales over the last days.”

The price of different origin beans into the Chinese market has a direct impact on Chinese crush margins and hence on how the country tailors its origination strategies.

“Crush margins [for soybeans] from Brazil improved a lot this week, so we expected there will be some more [Brazilian beans] trades coming soon,” the Chinese analyst said.

China’s domestic gross crush margins for Brazilian soybeans from February to July 2022 landed in slightly positive territory on Wednesday, while margins using US beans remained negative, according to Agricensus’ assessment.

With Brazilian beans more competitive, buying interest is expected to shift even more intensely to the country, where the cargo market has already been more active than anticipated since September.

Jeopardy

The other side of the coin is that the shift in interest of the world’s top soybean buyer from the US to Brazil has the potential to jeopardise an already tight shipping schedule if the US is to meet the USDA’s 2021/22 export estimate.

According to USDA data, the US must ship over 2.2 million mt of beans per week on average until the end of February to meet 85% of its export programme – a typical achievement rate for the middle of the marketing year when Brazilian new crop beans tend to kick in.

This is nearly 100,000 mt higher than the average rate of shipment during the same period last year, and the programme tends to face further headwinds as beans will compete for logistical capacity with corn that is also under a tight shipping schedule.

Considering this outlook, many market participants believe the USDA will lower its 2021/22 export estimates in its upcoming supply and demand outlook that will be released on November 9.