FORT COLLINS, Colo. (Reuters) - U.S. soybean sales to China have finally started to resemble the pre-trade war era, but amid massive Brazilian shipments and the record build in Chinese soybean stocks, one cannot help wondering whether China will end up needing as many soybeans as the United States hopes to export later in the year.
As of June 11, China had 3.05 million tonnes of U.S. soybeans booked for delivery in 2020-21, which starts on Sept. 1. That is China’s largest new-crop total for the date since 2014.
Since June 11, China has booked at least another 390,000 tonnes of new-crop beans. That sale was announced last Monday and there have been no large, reportable sales since, perhaps a bit frustrating for soybean bulls.
In March, soybean stocks fell to the lowest levels in at least a decade at China’s ports, where the imported oilseed is crushed into feed for the country’s hog herd. But as soon as Brazil’s record-large armada of soybean vessels began arriving in mid-April, stocks came screaming back.
China’s port stocks have almost doubled since mid-April, reaching 6.5 million tonnes by mid-June. That is up 22% from the same week a year ago but down 17% from 2018’s high for the time of year.
To illustrate the strength of the rebound, port supplies increased by about 2.9 million tonnes in the seven weeks ended June 7. That is nearly 50% larger than the previous seven-week record from 2012.
The U.S. Department of Agriculture expects China’s soybean imports to rise 2% in 2020-21 to a new record of 96 million tonnes, but that is disappointing relative to previous market ideas about the Chinese demand trajectory.
In mid-2018, just before the onset of the trade war, USDA had predicted 2018-19 Chinese imports at 103 million tonnes. That forecast fell sharply once Beijing implemented import tariffs on the U.S. oilseed in July 2018, and China’s battle against African swine fever that began a month later has curbed soybean imports ever since.
USDA sees 2020-21 U.S. soybean exports rising nearly 25% on the year to 2.05 billion bushels and based on past data, the agency must be assuming that at least half of that business will be picked up by China.
That would yield around 28 million tonnes, roughly the same volume of U.S. beans shipped to China in 2017-18, but it would be well short of the assumed tonnage needed to fulfill the Phase 1 trade deal to which both sides remain committed. Annual U.S. soy exports to other countries have also never reached 1 billion bushels in the absence of conflict with China.
Market participants have relied on the idea that Brazil will soon exhaust its soybean supply, though there have not been signs that the end of the export campaign is nearing, and “off-season” shipments have been unusually strong for two years now.
USDA sees Brazil exporting 77 million tonnes of soybeans between February 2020 and January 2021, which the agency defines as the local 2019-20 marketing year.
Official Brazilian export data shows that shipments reached 46.7 million tonnes in the first four months of 2019-20, with 73% to China.
That would mean Brazil had 30.3 million tonnes left to ship as of June 1, which would be a four-year low for the June-January period. Shipping lineups as of Friday do not suggest that to be the case, at least in the near term, as the soybean schedule remains substantially heavier than in the past two years.
Brazilian soybean premiums for deliveries later in 2020 have fallen over the last 10 days, the decline coinciding with China’s huge string of U.S. bookings. That is not consistent with the notion that Brazilian supplies will be empty in a couple months.
Brazil’s record 2017-18 export volume of 83.7 million tonnes came on a 122 million-tonne crop, and USDA sees the 2019-20 harvest at 124 million tonnes. Brazil has shipped 36% more soybeans in the first four months of 2019-20 than the high set two years earlier.
Industry estimates for Brazil’s latest soybean harvest are lower than the initial guesses due to unfavorable weather in the country’s far south. However, Brazil’s actual 2019-20 result is probably higher than current estimates, regardless of whether that is ever recognized on a balance sheet.
Last month, USDA bumped up the country’s 2018-19 harvest by 2 million tonnes to 119 million. That revision probably flew under the radar for most analysts who were focused on the recent 2019-20 crop and USDA’s brand-new prediction for 2020-21.
USDA had also made upward revisions to Brazil’s prior two crops roughly a year after those harvests concluded, but people less frequently pay attention to numbers from prior years on report day.
The last couple of Brazilian soybean harvests are still probably understated on balance sheets, which, if true, will allow the country to continue shocking the market with new export records.
The opinions expressed here are those of the author, a market analyst for Reuters.
Editing by Matthew Lewis
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