China soybean buying picks up on cheap premiums, better margins

Cheap soybean basis premiums in Brazil have revived buying interest from China, with about 40 cargoes said to have changed hands over the course of the week, market sources said Friday.

Both state-owned companies and commercial crushers had been active in the market, mostly covering near-term positions.

June cargoes were trading at a 50-60 c/bu discount to July CME soybean futures CFR China, down about $1/bu from levels seen at the start of the month, while July cargoes were heard trading at 20-24 c/bu under futures.

“China's purchases in March were disappointing. On average, weekly purchases were around 15 to 20 vessels, when the usual number for that time would be 30 vessels,” according to Eduardo Vanin, the lead soybean analyst at brokerage Agrinvest Commodities.

“But in the last two weeks, purchases have picked up pace again,” he said, adding that 28-30 cargoes had changed hands last week.

The historically very low basis premiums in Brazil over the last week coupled with higher domestic soymeal prices helped improve crush margins in China, making purchases more attractive.

Differentials on both an FOB basis and CFR China basis have lost about $1/bu over the last two weeks, with May Paranaguá paper trading at as low as $2/bu discount to May CME futures on Thursday.

At the same time, sources said a reduction in delays at ports in China, which had been caused by a change in inspection and quarantine rules introduced recently, had also facilitated more buying, sources said.

“Possibly around 10 days were added to get beans into crush facilities,” one Chinese market source said, noting that the situation had improved over the last few days.

“Now we feel the crushers began to operate and the cash soy meal prices are falling quickly,” the source said.

Most of the trades heard this week have been for May or June cargoes, although some were also for later dates, in July and August.

China is now thought to have covered most of its soybean needs for May and June, but it will still need to buy soybean cargoes for the summer months.

China imported 6.85 million mt of soybeans in March, 7.9% up on the year but 2.7% lower against February, according to customs data released Friday.

Accumulated imports in the first three months of the year reached 23.02 million mt, 13.5% higher from the level recorded a year earlier.

Of this, shipments from the US accounted for 16.4 million mt, 3.9 million mt came from Brazil and 1.43 million mt from Argentina.