With much fanfare a few weeks ago, Chinese and U.S. officials signed Phase I of a trade pact designed among other things, to stimulate exports of U.S. agricultural products to the world’s most populous nation.
The soybean market was especially interested in the agreement as using 2017 as a baseline, the deal might result in the U.S. exporting in excess of 1.1 billion bushels with some analysts tossing out volumes on the order of 1.05 bbu in Year 1 and possibly as much as 1.6 billion bushels in Year 2 of the deal.
A welcome improvement?
Either would be a welcome improvement from Calendar Year 2018 exports of a meager 303 million as the trade dispute unfolded, and considerably more than the January-November 2019 total of 733 million.
Just this month, the February WASDE found the USDA upping its 2019-2020 export forecast by 50 million bushels to 1.825 billion. If realized this would be a 75-plus million bu. increase over last year’s crop year total.
The USDA cited “increased exports to China” as the driving force behind the increase and also boosted China’s soybean imports from all sources 3 MMT to 88 million. Higher crush was credited with the larger import forecast as the former was raised 1 MMT from January to 86 million and is now 1 MMT larger than the 18-19 result.
However, there are some worrisome clouds on the horizon that may make it difficult to achieve the 19-20 forecast as well as last week’s Outlook Forum release of a 2.050 billion bu. export projection for 1920-21:
- The USDA increased the Brazilian crop by 2 MMT earlier this month, to a record 125 MMT. That increase puts this year’s combined South American (Argentina, Brazil and Paraguay) production at 196.4 million, also a record and up 5.5 MMT from last year’s previous high.
- Brazil has long been China’s primary soybean supplier, sending an average of 47% of its production to China in the five years PRIOR TO last year. At 125 MMT, that works out to 59.1 MMT (2.17 bbu) and leaving 28.9 MMT (1.06 bbu) for the U.S., providing Argentina ships ZERO soybeans to China.
- Absent any tariff, Brazil can deliver soybeans to China at approximately $373/metric tonne, which is some $9.50 per tonne or $.26 per bushel cheaper the U.S. soybeans off the PNW (Pacific North West) and Brazilian ports have not yet been truly hit with pressure from this year’s harvest which typically widens the discount versus the U.S.
- Wet weather has caused some delay in shipping. Keep in mind however, buyers are anxious to take Brazilian soybeans—the line-up of vessels waiting to load is near record large and at 350 million bu., is 40% larger than a year ago at this time.
- Foreign buyers, China and otherwise, have not exactly been flocking to the U.S. Superstore to buy beans lately. Sales over the past month averaged just 20 million bu. per week, one-half of last year’s pace and slightly below the seasonal average of 22 per week.
- Trade data indicates that China’s soybean imports from the Big Three for the September-December period of this year (19-20) are up a whopping 9 ½ MMT versus a year ago, an interesting statistic given the widespread information on the impact of ASF (African Swine Fever) on hog numbers. So how much more of a year to year increase can be expected in the last eight months of the year since much of this seems to have gone into rebuilding reserve stocks?
- China’s crush from Sept. 1 through early February is DOWN about 2.5 MMT and in contrast to the USDA forecast for a 1 MMT increase in the annual total.
- Unshipped U.S. soybean sales of 185 million bu. as of February 13th are not even 40% of the year ago level and are at the lowest total since the 2012/13 crop year. Unshipped sales to China are only 15 million, and one would have to go all the way back to 2001-02 to find a smaller number.
- Lastly, unshipped soybean sales as of mid-February expressed as a percent of the USDA’s February export forecast (185/1825 = 10%) are at a 31-year low. This suggests a record amount of sales between now and the end of August of almost 600 million bu. in order to meet the estimate. That’s a solid 110 million bu. above the previous high from two years ago.
There’s a lot of bearish factors out there but if China does indeed, attempt to comply with Phase I, the market could see an unprecedented amount of export sales in the coming months. And, near record exports as suggested by the graph below.