Global Markets: Oilseeds – U.S. Soybean Futures Rise on Strong Chinese Demand, Limited Brazilian Supplies

Freshly harvested soybeans. ©Debra L Ferguson

Soybean prices on the Chicago Exchange topped $10.00/bu in mid-September, eventually peaking at $10.44/bu on September 18 before falling back to just below the $10.00 dollar mark at the end of the month. Subsequently, prices rallied again to near $10.50/bu following the release of the September Grain Stocks report and further export sales strength.

This is the first time near-term soybean futures have reached the $10.00 mark since early June 2018. Current prices are roughly 27 percent above levels observed in early August prior to the first NASS 2020 soybean yield estimate.

The dynamics behind the mid-August to mid-September price surge are complex but basically reflect a rebound in China purchases of U.S. soybeans and limited availability of exportable supplies in South America. Recovery of China’s pork industry from African Swine Fever has spurred imports in 2020 with volume up 8.4 million tons (15 percent) for the first 8 months of 2020 compared to a year earlier.

Most of these purchases were from Brazil, where exports to all markets (January-September) were up 30 percent year-over-year to a record 79.2 million tons. The strong pace of 2020 exports, driven by strong China demand and a record low exchange rate, has depleted exportable supplies and is forecast to drive Brazil imports to their highest level since 2003.

Consequently, China buyers have turned agressively to securing U.S. soybeans in recent months. Outstanding sales to China in mid-September totaled nearly 17.0 million tons, nearly equal to the record set in 2013. Total outstanding sales for all markets in mid-September, including unknown destinations, is at a record 32.0 million tons, a three-fold increase compared to 2019.

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Weather issues in the United States and related reductions in forecast soybean production have further reduced forecast ending stocks when combined with lower 2019/20 carryout. This increases the possibility of global supplies tightening in 2021, particularly if the current La Niña weather pattern leads to drier conditions in South America.

This has likely added some strength to futures prices. However, soybean stocks in China are currently high, rivaling the stock levels seen at this time in 2018, and could mitigate any price strength resulting from production shortfalls.

Futures markets do show some softening of soybean prices timed with the 2021 South American harvest yet currently remain above $10.00/bu through the August 2021 contract. The strong rebound in China purchases and further draw down in U.S. stocks should keep near-term prices well above the low levels observed in 2019 and earlier this year.

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