China washes out five “expensive” US soybean cargoes

4 Jul 2022 | Eduardo Tinti

Chinese buyers cancelled at least five soybean cargoes sold from the US last week in a process known colloquially as a “wash out” as the country lacks price competitiveness, trade sources have told Agricensus Monday.

Three August cargoes that had been booked out of Gulf ports and two out of the Pacific Northwest have been settled contractually rather than being physically lifted according to trade reports, with rumours that the volume could - at least partially - have been shifted to Brazil.

The move came as US soybeans are way more expensive than their South American counterpart for nearby loadings.

A broker based in Brazil said trading houses that process soybeans in the US and China have been replacing US for Brazilian beans considering the large discounts the latter has been trading under.

According to Agricensus’ assessment, Brazilian beans are more competitive than those out of the US even for September shipment, which is uncommon considering seasonal factors as the US typically is into its harvest period then when prices are usually depressed by increasing supply.

The USDA reported net reductions of 120,000 mt of soybean export sales on Thursday, with total 2021/22 commitments now at 60.1 million mt.

Considering those figures and underlying trade dynamics backed by price arbitrage, further washouts or US volumes committed for 2021/22 loading spilling over into the upcoming marketing year cannot be ruled out.

Even if the US does meet the soybean export estimate of 59.1 million mt set forth in the USDA supply and demand monthly report from early-July, this will represent a 1.1 million mt reduction compared to current accumulated commitments.

“I expect USDA [soybean export] commitments to fall short of current expectations. Demand destruction is real,” senior grain and oilseed commodity analyst at Futures International Terry Reilly told Agricensus.

Meeting the USDA’s 59.1 million mt export target might prove challenging on its own right as it would require average weekly exports of 733,091 mt up to the end of the 2021/22 marketing year.

“It is unreachable considering current premiums,” a Brazilian broker said.

The last time when weekly exports landed at or above that level was in the week ending on May 12 when the country registered nearly 1.0 million mt of soybeans shipped.

Since the beginning of June, the US exported less than 550,000 mt of soybeans per week on average.

The next USDA supply and demand Wasde report will be released on July 12 when it will be possible to see whether the agency will make any changes to its export estimates.