CHICAGO United States soybean exports appear to have been moving along at a record-fast clip, but the dramatic numbers may be hiding potential speed bumps lurking ahead.
As the largest soybean crop in U.S. history continues to roll off the combines, support for Chicago soybean futures has been heavily rooted in the aggressive export campaign planned for the 2016-17 marketing year. Burgeoning global demand has prevented the market from turning fully bearish against the oilseed in the face of record world supply.
The U.S. Department of Agriculture projects that the United States, which contributes 40 percent of global soybean trade, will export an all-time high 55.1 million tonnes (2.025 billion bushels) of soybeans this year, an increase of 4.6 percent on the record 2015-16 season, which concluded on Aug. 31.
Some 60 percent of the United States' exported volume will land in China, the world's largest soybean buyer. October through December is typically the heaviest period for U.S. soybean shipments before the supply from competitor South America comes online early next year.
But with so much focus on China, the remainder of U.S. soybean customers are often overlooked in the demand conversation, and this 40 percent minority by itself may imply a slightly different story than what appears on the surface.
Further, the South American soybean competition could be heating up a bit earlier than expected.
THE 'OTHER GUYS'
Through Oct. 13, U.S. soybean sales for the new marketing year stood an impressive 28 percent ahead of last year's pace and almost identical to that of 2014, which was the United States’ best start to an export year by first-quarter exports.
Official U.S. export data for September, the first month of the marketing year, will not be available until Nov. 4, but weekly inspection data suggests that soybean shipments in the first seven full weeks of the season are a hefty 9 percent greater than last year.
But in breaking down both the sales and inspections numbers by buyer and destination, the "non-China” buyers have failed to post numbers as big as might be expected.
In the first seven full weeks of the marketing year, inspections data implies that soybean shipments to China are up 32 percent on 2015, which had begun at a record pace.
But cargoes to all other destinations are down 28 percent on the year, equal to about 1 million tonnes or 37 million bushels (reut.rs/2dLSFiD).
The sales data also tells a similar story. The volume of U.S. soybean sales originating outside of China currently sits 18 percent behind 2014 and only 14 percent ahead of 2015, half of what the full data would imply (reut.rs/2dLX7Oa).
This means that U.S. soybean demand has been disproportionately reliant on China’s appetite for soybeans, and this somewhat exposes the domestic market to a possible letdown if China’s business slows or migrates south of the equator.
This also could mean that the "other guys" are well-supplied at the moment and may be waiting for a potentially better deal out of South America. The fact that 2017-18 sales thus far are some of the slowest in several years may also support the theory of a well-stocked world.
BRAZIL ALREADY HORNING IN
If the United States has already lost some of its usual soybean business, it certainly cannot afford to lose China's business, but that is exactly what may have started to unfold last week.
International traders told Reuters this week that Brazil, the world’s leading soybean supplier, signed deals last week with China for four soybean cargoes to be shipped in the next two months, with at least 10 more being negotiated.
The exact volumes were not disclosed though the confirmed purchases were said to represent a small fraction of the 7 million tonnes per month that China buys.
Given the alleged small amounts, this does not seem to pose a problem - yet. But this could be foreshadowing potential struggles that the United States’ export campaign may face down the road, especially as South American beans hit the market.
Brazil has recently been offering soybeans at a price that is very competitive to the U.S. product, and the Brazilian oilseed is generally known to have higher oil and protein content than its U.S. counterpart. All of these factors could lead China to squeeze Brazil dry of soybeans during the off-season rather than purchase from the fully stocked shelves of the United States.
The bottom line is that the sustenance of U.S. soybean demand throughout the marketing year may ride more heavily than ever on the size of the South American crop, which will be harvested beginning early next year.
And U.S. exporters need to entice buyers other than China back into the mix because if South America’s crop goes boom, the U.S. export campaign could go bust.
(The opinions expressed here are those of the author, a market analyst for Reuters)
(Editing by Matthew Lewis)