THE BIG READ: Soybeans upended as 'atypical' 2023 reshapes dynamics

For the global soybean market, and its downstream products, 2023 is set to be particularly interesting – and potentially atypical – in terms of market dynamics and fundamentals.

Brazil is lifting a bumper soybean crop from its fields, while Argentina is facing a historical crop loss that raises significant headwinds to the country’s crush industry - and it is still early days in terms of knowing what the US crop will look like.

At the same time, Chinese demand remains lukewarm, although official forecasts call for large soybean import programmes in 2022/23 and 2023/24.

This mix may bring about significant shifts to traditional supply, demand and trade patterns, especially looking into the second half of the year but the level of uncertainty is high.

In this article, Agricensus analyses the potential impacts of these fundamentals.

Typical market dynamics

Brazil is the world’s largest soybean producer and exporter with the US and Argentina completing the top-three list of main producers.

Together, the three countries accounted for 82% of global production and 91% of global exports in the 2021/22 marketing year, according to the US Department of Agriculture (USDA) latest estimates.

There has always been a seasonal factor when trade is considered, with Brazil being the main exporter during and after its first crop harvest, especially during the March-June period, and the US taking the lead when its crop hits the ports, typically between September and December.

Argentina, by its turn, crushes most of the soybeans it produces, along with around four million mt of beans typically imported from neighbouring Paraguay and is traditionally the world’s largest soymeal and soyoil exporter.

On the demand side, China is by far the world’s largest soybean importer, responsible for 58% of total imports in the 2021/22 and 2022/23 marketing years according to USDA’s latest figures.

An atypical year ahead?

The USDA projects Brazil will produce 153 million mt of beans and export 92.7 million mt this marketing year, well above the 129.5 million mt and 79.1 million mt estimated for the previous crop.

According to some analysts, Brazil’s exports could be even larger if Chinese demand picks up or if the US crop faces any headwinds.

“If there are weather problems in the US, especially if there is no acreage increase there, I believe the demand for Brazilian soybeans will be firmer than normal during the second half of the year... In this case, Brazil’s exports can hover around 95 million mt or so,” Agrural’s analyst Daniele Siqueira told Agricensus.

Brazil’s soybean harvest faced significant delays at the beginning of the season due to heavy and persistent rains and logistical bottlenecks.

These delays were coupled with a slow pace of selling and sluggish demand as Chinese buyers have been reportedly buying mostly hand-to-mouth due to poor crush margins in the country.

As such, while Brazil’s main export window will likely be squeezed in a shorter period, mostly between March and May, analysts expect the country will continue to export more beans than usual throughout the year.

“Soybean shipments will have a more linear monthly distribution… we have already shipped 16 million mt in one month and we can do it again as long as internal logistics support the throughput from interior markets to ports,” Siqueira said.

With more Brazilian soybeans lurking and the country facing storage space shortages, especially when the large second corn crop safrinha harvest starts, there will likely be pressure to keep up exports during the US’s main export window in the second half of the year.

Hamper

This may hamper the US’s export programme somewhat.

“New crop US soybean export sales are down almost 80% versus this time last year and old crop unshipped sales are 55% smaller compared with the 2021/22 marketing year,” Advance Trading’s Larry Shonkwiler told Agricensus.

“It seems like with Brazil being so cheap, the US could lose a fair amount of old crop demand to several key markets,” he added.

Brazil’s bumper crop has pushed cash premiums sharply lower since harvest started and local sources believe there is room for further downswings.

That’s particularly the case for the farther end of the forward curve as the pace of farmer sales remains low, which could increase Brazilian beans’ price competitiveness in the second half of the year.

On March 31, the USDA released its planting intentions report with no major increases to US soybean acreage expected for the 2023/24 marketing year.

This is another factor that may help bolster Brazil’s export market share to the detriment of the US – with any additional headwinds in terms of weather-related losses in the US strengthening further Brazil’s prospects of gaining market share.

All said, there are relevant question marks hovering around China’s demand, which can be considered a wild card for global supply and demand balance this year.

The USDA’s local post in Beijing has pegged China’s soybean imports at 96.5 million mt in 2022/23 and 97.5 million mt in 2023/24 on a report dated March 20, up from 91.6 million mt estimated for 2021/22.

However, Chinese demand for soybeans has remained relatively lukewarm since the beginning of 2022/23 amid persistently negative domestic crush margins.

A lack of Chinese demand may make it harder for Brazilian farmers to sell their record crop, which could lead to the accumulation of larger ending stocks.

Local dynamics

The year will likely bring about relevant shifts in market dynamics in origin markets.

Argentina

According to Shonkwiler, Brazil’s soybean exports from September to December could be as much as 25% larger in the 2023-24 marketing year but part of that increase could be absorbed by Argentina.

Argentina is facing a historical crop loss and the country’s huge crush industry will need to import more soybeans than usual from neighbouring Paraguay, Uruguay and Brazil to keep operations running and honour contracts with analysts calling for imports of 8-12 million mt.

Even with higher imports, Argentina’s soybean crush is expected to fall significantly due to the lack of inputs, with market sources pegging it as low as 30 million mt, down from a typical 38-42 million mt/year level.

While Argentina will struggle to keep its crush plants running and honour commercial contracts and financial obligations, Brazil is in a good position to take advantage of the situation not only to export more beans to its neighbour but also to increase its export market share for downstream products.

Brazil

Brazil is expected to crush 52.5 million mt of soybeans this year according to the country’s vegoils association Abiove and has an installed capacity about 10 million mt higher than that.

“With a large crop, Argentina facing a historical crop loss and China buying hand-to-mouth, Brazil has space to break a new record of soymeal exports this year, maybe breaching the 21 million mt mark,” Siqueira said.

“Soyoil exports will also be strong. Not as much as last year… but surely coming in above two million mt,” she added.

According to Siqueira, Brazil’s crush industry has enough spare capacity to ramp up output depending on demand and price competitiveness with the US and Argentina.

Exports of downstream products may become an important source of demand for Brazil’s large soybean crop, with larger volumes being crushed domestically.

One of the main concerns in Brazil is related to internal logistics as soybeans will need to compete with the large second corn crop safrinha when harvest starts in the second half of the year.

“We will have beans and corn being exported at the same time in the second half of the year and we have already told our clients to leave some logistical space for soybeans instead of turning completely to corn,” Siqueira said.

That may limit Brazil’s corn exports, according to the head of analysis at Brazil’s brokerage and consulting firm Agrinvest, Eduardo Vanin.

“It will pressure corn premiums more than soybeans… trading houses may work with smaller corn export programmes for July,” Vanin said.

The competition between corn and soybeans in the second half of the year is more of a concern in Brazil as the country has a structural deficit in terms of storage space, with farmers typically needing to get the largest part of crops to ports as they are lifted from the fields.