DATA: Four reasons why Chinese purchases of US soybeans may slow

14 Sep 2020 | Andy Allan

A shrinking crop and a rampant buying spree from China pushed soybean futures back into double figures on Monday, raising questions about whether futures are overbought and how much more can China buy?

The following is an analysis of data collected by the USDA, the China National Grain and Oilseed Information Centre as well as Agricensus trade, data all of which can be found on our data pages.

Record Chinese forward purchasing

According to USDA export sales data, assuming that 50% of the sales listed as “unknown” eventually head to China, state and private entities have contracted a chunky 20.3 million mt at the start of the 2020/21 marketing year in the first week of September.

That compares with a three-year average of 11.2 million mt at the start of the marketing year before the trade war began and a previous record of 14.2 million mt in 2016.

It is not only high in absolute terms, as a percentage of soybeans sold forward, Chinese current committed purchases are 68% of the total 30 million mt committed, compared with a 2015-17 average of 60%, and are 35% of the total expected to be exported compared with a 21% average.

Huge Chinese stocks

According to the state-backed CNGOIC, the rolling four-week average of stocks is above 2.3 million mt held at ports. That’s the highest it has been in more than 18 months, according to the data, and 10% higher than average stocks in the three months running up to the trade war.

Chinese Q4 coverage very high

For the fourth quarter of 2020, shipments out of the US Gulf are nearly done. The latest estimates according to traders spoken to by Agricensus suggest 90% is covered for October, 70% for November and 60% for December.

That leaves just 5.5 million mt to purchase before the Brazil crop starts to hit its ports in January.

A massive Brazil crop

A favourable currency and rampant demand for soybeans means that Brazilian farmers will produce a huge soybean crop this year that is expected to have a price impact on the market come January.

The USDA estimates Brazil’s crop will be a whopping 133 million mt, up 3-4% on the year, although only 85 million mt is expected to be exported, down 8.5 million mt on the year.

Nevertheless, a look at indications further out on the curve show that firm soybean offers of Brazilian origin into North China on a 66,000 mt vessel are $20/mt more expensive for December shipment than those out of the US Gulf, but for January they are $10/mt cheaper.

And there could be even more bearish news for US sellers – in four of the last five years the USDA actually increased its forecast for the size of the crop from its September projection by the time December came round (the December forecast being important as analysts have a better idea of yield.

The other time? They left the projection the same.