2024-07-23 15:06:00
The oilseed said goodbye to Chicago last Friday overwhelmed by bad news and unexpectedly found a promising Monday for prices. At the end of last week, it was revealed that China is facing a soybean surplus as the peak export season for the United States approaches, creating a strongly bearish scenario for the commodity.
The ingredients of this unfriendly reality include record imports in July, which may affect China’s soybean demand in the fourth quarter. Adding to this is the low acceptance rate of soybean auctions set up by Beijing so far in 2024, a sign of a market in no rush to acquire soybeans. Finally, the lower demand for pork is impacting the consumption of soybean meal behind the Great Wall.
Thus, beyond this crossroads, the current soybean surplus threatens to curb China’s appetite for imports during the September-December period, the peak marketing season for U.S. soybeans, putting more pressure on prices, which in Chicago are already close to four-year lows. Sources from the northern country indicate that the main problem is that the demand for soybean products is not increasing in China in line with the growing supply.
This country has the largest pig herd in the world. They are the end customers of the soy that is ground to produce meal, but they may not be experiencing their best moment. The economic situation in the Asian giant is far from the times when it grew at paradoxically Chinese rates, and that is affecting demand for this meat.
China’s pork production in the second quarter fell compared to the previous year, and the herd decreased to 415.33 million heads. This comes following government directives to improve a business that was oversupplied. In this context, information indicates that soybean meal prices plummeted nearly 8% in three weeks in the Chinese futures market, while soybean oil dropped 4% last week. Processors are losing money. Demand is weak and people are being very cautious with their income.
An American analyst emphasizes that soybean meal stocks in China as of July 12 were at six-year highs. Meanwhile, a Brazilian broker warns that soybean and meal inventories in Chinese ports grew again last week.
All indications are that Beijing has accelerated its soybean imports out of fear of a rebound after reaching very low prices and due to the fear of a possible Trump victory in the November elections. The tycoon has already announced heavy tariffs on Chinese products should he return to the White House, and soybeans are the favored target for retaliation from the Asians.
Renewed trade tensions with China could mean less demand for U.S. soybeans in the international market and further punish prices in Chicago, at a time when global stocks are considerable.
Moreover, a depreciated real has done its part in saturating China with soybeans. It is believed that Brazilian shipments could continue to expand the grain surplus in the largest country in Southeast Asia. In the first two weeks of July, 75 shipments were dispatched, totaling about 4.5 million tons of grains, which would arrive in August. The accumulated volumes of Brazilian soy are not abnormal, what is abnormal is the speed at which they have accumulated, indicating that Beijing wants to take advantage of the devaluation of its Mercosur partner’s currency.
In this context, it is speculated that Chinese processors will tend to slow their bean purchases starting in the fourth quarter, due to accumulated stocks and falling demand linked to pigs. Such was the precariousness of soy heading into the last weekend when the climate played its cards and Joe Biden surprised both friends and foes, or perhaps just the latter.
On Monday, the same soybean that had been plummeting recovered between USD 7 and USD 11 when traders and investors questioned Trump’s electoral prospects, as U.S. Vice President Kamala Harris received strong political support. These key players told Reuters that they believed it was likely that a Harris presidency would maintain current trade policies between the U.S. and China. “There is a certain market backing for the idea that a Trump victory is not as assured as it was a week ago,” said the American consulting firm Consus Ag.
And if there are chances that we might not have a trade war next year and one is heavily short, the best strategy is to cover some of those positions. Especially given that there are now doubts regarding the weather conditions as we enter the critical period for U.S. soybeans, which is just around the corner. The week will reveal how solid this spring that the soybean has just captured truly is.
Future Trends in Soybean Markets Amid Changing Conditions
The soybean market recently experienced a sharp shift, with prices unexpectedly increasing after turbulent times. This change can be linked to various dynamics, primarily driven by China’s economic landscape and political uncertainties in the United States.
As China enters a phase of record imports and a weakened demand for soy derivatives, analysts suggest that this may stifle their appetite for U.S. soybean imports. With projections indicating high soybean stocks, concerns loom over a potential decrease in Chinese demand as the fourth quarter approaches, a crucial time for U.S. soybean exports.
China, holding the world’s largest pig population, remains the primary consumer of soybean products. However, recent statistics show a decline in pork production, which could impact soybean meal consumption significantly. The economic pressures in China are leading to tighter consumer spending, driving demand down for meat products and their associated feed, such as soybean meal.
Meanwhile, fluctuating political sentiment in the U.S. has added another layer of complexity. The rise of Kamala Harris as a potential future leader signals a shift in trade policy that some market players believe may stabilize the trade relationship with China, especially compared to a possible Trump presidency, which could reignite trade tensions.
Furthermore, the depreciation of the Brazilian real continues to flood the market with Brazilian soy, enhancing global competition and putting additional pressure on U.S. prices. Notably, Brazil’s rapid export growth indicates a strategic maneuver to leverage currency advantages and meet Chinese demand while it remains economically favorable.
Taking into account these factors, we may anticipate a cautious approach from buyers in the coming months. With increasing stockpiles and evolving consumer preferences in China, the demand for imported soy may slow down. As soybean futures players reassess their strategies in light of climate uncertainties and demand shifts, the market may remain volatile.
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