CFR China soybean premium turns negative for first time this season
Premiums for Brazilian soybean cargoes on a CFR China basis have turned negative for the first time this season in an indication of mounting pressure on soybean prices from another bumper harvest and weak demand in China.
There were reports Monday that March cargoes had traded at a 5 c/bu discount over March CME futures late last Friday as trading houses cut their risk exposure by reducing their long positions or logistic programs, according to a Chinese broker based in Shanghai.
Others also reported rumours of a trade as low as at a 10 c/bu discount around the same time for Brazil March shipment, although this could not be fully confirmed.
On Tuesday, sources reported trades at a 3 c/bu and 5 c/bu discount to March futures for Brazil March shipment, an indication that the switch to discounts is ongoing.
The trade levels would point to an early-than-usual venture into the negative territory for near-term Brazil shipments, which last year only turned into discounts for May and June shipments in April, when it is usually the time for Brazilian farmers to repay their loans and thus see more pressure to sell at low prices.
A good South American soybean crop, a relatively low ratio of farmer selling, and an early Brazil harvest, combined with a weak Chinese demand for soybean meals have all contributed to the slump in premiums, according to another China-based broker.
“Last year, the discounts were seen in April because of congestions at Brazilian ports and a reduction in Argentinian crop at the time, which delayed the plunge; however the two conditions have both improved this year and that’s why we are seeing the discounts emerge so early,” a third broker said.
In addition, soybean stocks in China remain at a high level, while soybean meal trade volumes have been lukewarm, pointing to a lack of willingness to buy soybeans in the country, he said.
China's weekly imported soybean stocks at major crushers as of January 26 decreased by 440,000 mt from a week ago to 6.38 million mt, but the level still represents 260,000 mt more than a month ago and a whopping 2.09 million mt more than a year ago, according to a note published on Tuesday by the China National Grain and Oil Information Centre.
Soybean meal stocks, meanwhile, stood at 1 million mt as of January 26, which is a slight decrease from a week ago but 60,000 mt more than a month ago and 470,000 mt more than a year ago, according to CNGOIC.
In another potential sign of China's weak demand, Sinograin was said to have recently pushed back their buying of five US soybean cargoes billed for February to March to now April, according to a note from Overseas China Investment.
The move could be aimed at making room for future soybean arrivals given the high levels of stocks of the crop right now, according to a China-based futures trader.
Going forward, even as crush margins in China are expected to be more positive amid plunging soybean prices, the pressure on premiums could remain, Agricensus sources said.
“Theoretically, we still can see more pressure on prices as harvest progresses, because at some point farmers will have to sell, and there will be big volumes to sell, since only 30% of the 23/24 crop has been sold so far by producers,” said Daniele Siqueira from Agrural, adding that farmers in Brazil always have big bills to pay in March and April, and that forces them to sell more at that time of the year.
“However, if our crop keeps shrinking, with eventual problems in states that plant and harvest later, there might be little room for further price decreases,” she said.
Earlier this month, Brazilian food agency Conab cut its soybean crop estimates by 3.1% to 155.3 million mt, although the new estimates are still 0.4% higher than 2022/23's 154.6 million mt record crop.