AgriCensus Report

Brazil soybean exports slow as China demand, early harvest disappoints

Soybean exports out of Brazil in January will not reach 2 million mt, according to Agricensus calculations using export and line-up data.

Brazil exported just over 1 million mt of soybeans during the first two weeks in January with a further 800,000 mt in the line up data.

And while that will eclipse last year’s record of 1.5 million mt exported over the whole month, it does not reflect recent expectations that exports will be much higher due to an early harvest in Brazil’s southern states.

Sources say the trade war and the uncertain picture of Chinese demand has deterred buying of soybeans by private crushers, many of which have been impacted by negative crush margins.

Typically, Chinese crushers would buy US beans for January shipments to cover March crush, but with US imports taxed at 25%, US bean sales have been limited to state-sponsored purchases of 5 million mt, leaving a big question of what China will do for March supply.

“It depends how much of that (5 million mt) finds its ways to crushers,” said one soybean trader at an international trading house, adding that if much of it does trickle out then buying will remain muted.

Brazil remains the cheapest origin for Chinese crushers to buy beans, but trade has been “very quiet” for weeks, according to Brazilian and Chinese sources, with about 20 cargoes being bought since December.

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As trade talks kick-off, Sinograin, Cofco buy more US soybeans

After much speculation, Chinese state-owned entities returned to the market on Monday to buy US soybeans, purchasing up to 25 cargoes (900,000 mt), according to several market sources.

Just hours after trade talks between US and Chinese delegates kicked off in Beijing, several sources reported between 20-25 cargoes were bought by state-owned stockpiler Sinograin and Chinese agribusiness Cofco International.

The panamax-sized vessels were bought for loading January and February out of the US Gulf and some vessels loading February and March were heard loading out of the Pacific Northwest.

“The price is estimated at 148 cents per bushel FOB US Gulf over March futures,” said one trader, equating to $394/mt.

A second source said the price for US Gulf was “150 cents per bushel” with PNW cargoes 10 cents per bushel ($3.70/mt) cheaper.

While a third source said the price paid for beans off the Pacific Northwest for February and March loading was 142 cents per bushel over March futures ($392/mt).

Cofco and Sinograin were unavailable for comment.

If true this would be the third round of buying in the past month, with estimates that between 4 and 5 million mt have now been purchased.

In July, China slapped an additional 25% import tax on US soybeans in a retaliation for US taxing some of the nation’s technology exports – effectively blocking US suppliers from the world’s number one buyer of soybeans.

But after talks between President Xi and President Trump last month at the G20 summit in Buenos Aires, President Xi pledged to buy more US agricultural goods while negotiations to find a resolution to the trade spat were ongoing.

Chinese state-owned buyers had been rumoured to be in the market last week, but with a government shutdown in the US preventing the release of export data, the market will have to wait for exact details.

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Real impact of swine fever to be felt in China next year: sources

Pork prices in China could see a spike in 2019 due to a potential pig supply shortage caused by the ongoing African Swine Fever (ASF) incident in the country, according to government and market sources.

A government official from the Chinese National Development and Reform Commission (NDRC) said at an industry event in China on Saturday that, unless controlled quickly, the spread of the fatal disease could have a long-term impact on meat prices.

A shortage of pig supply may occur “if the disease cannot be effectively controlled or [if it] spreads even further, causing farmers’ willingness to replenish stock to be weak,” the chief from the price-monitoring centre at NDRC told Chinese private newswire Caixin.

Two new ASF outbreaks were found in both western and north-eastern parts of China on Sunday, taking the total number of outbreaks this year to 92.

However, the impact of more than 600,000 dead pigs has been deemed minimal for China’s pig supply in the short-term, but will have a bigger impact next year.

“The culling of pigs has little direct impact on pig stocks as China produces more than 700 million a year and culls 2 million pigs on average per day,” a China-based analyst from an international crusher told AgriCensus.

“It mainly effects stock replenishment. The replenishment declines 10% if there is no margin. The long-term effect is bigger,” he added.

China’s soybean crushers have been closely watching the potential impact of ASF on pig supply as soymeal – the main product from crushed soybean – is a main source of protein in pig feed.

“The impact on soymeal demand will firstly depend on pig stock level and secondly rely on the margin [for pig farmers],” the same analyst said.

China’s government says it will import 84 million mt of soybeans in the 12 months starting October, down about 10% on a year earlier and the first time that China has seen a substantial reduction in imports since records began.

 

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Drought, currency & El Nino combine to panic South Africa’s corn market

South Africa’s domestic corn prices have spiked as fears mount over the impact of dry weather during the critical planting period and as the country’s currency depreciates on the international market, sources have told Agricensus Tuesday.

The move is enough to again bring the country close to import parity and has seen limits applied to trading on the Johannesburg Stock Exchange’s corn futures contract.

“Things are not looking great on the weather this side, the market is in a bit of a panic,” one trading source said, as rains that were expected in the last few weeks have failed to materialise.

“It is still early days, but the optimistic outlook at the opening of the season has changed,” Wandile Sihlobo, head of agribusiness intelligence at South Africa’s agricultural business chamber, said in a note and the dryness hampering planting could shave 5% off the country’s corn crop.

Sihlobo currently expects the corn crop to come in at around 12.2 million mt, with the USDA forecasting production of 12 million mt.

El Nino

However, the anticipation of an El Nino weather pattern forming through the latter stages of 2018 and beginning of 2019, which typically brings less rainfall to South Africa, is also fostering fears for the coming key crop development stages.

“There are fears of an El Nino later in the 2019 summer season… this implies that the summer crop growing areas could experience more acute dryness from the end of February,” Sihlobo said.

Worries around planting progress – with some states already out of the optimal planting window – have also driven domestic fears, with the December and March corn futures contract seeing trading suspended as prices surged through the daily limit.

According to JSE data, the March contract rose by ZAR100/mt ($5.60/mt) on both Friday and Monday, for the first time since early 2017, to reach ZAR2,776/mt ($193.29/mt) at Monday’s close with the December contract climbing even more sharply to ZAR2,789/mt ($194.19/mt).

On December 4, the March contract had ended at ZAR2,470/mt, and December at ZAR2,393/mt.

“We’re very close to booking yellow corn shipments for imports in March,” the trading source said, with Agricensus assessing Argentina FOB Up River corn prices at $171.75/mt, while sources put freight at around $30/mt.

“White maize prices are higher on the back of a lack of rain and of course the weakening rand,” an email from the JSE said, with the rand moving from around 13.691 to the US dollar on December 3, to reach 14.385 against the dollar by December 10.

The higher prices may encourage farmers to plant later into the season, however, as they try and capitalise on the increase and amid hopes that rains will come in the days ahead.

“If we only plant 65% at an average yield, we should have enough stock,” the source said, with the country already seeing a build in stocks as exports have slowed.

“If prices stay at these levels, we could expect farmers planting deep into January, if they receive rain”.

 

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Brazil to export 83m mt of beans as November shipments double

Brazilian soybean exports during November more than doubled on the year to 5.07 million mt as Chinese buyers cleared out Brazil’s storage bins, customs data showed.

The figure is a new record for the month and surpasses the previous record hit last year of 2.14 million mt.

Chinese crushers have shifted their Q4 soybean purchases from the US to South America after President Xi Jinping hiked import taxes on US beans as part of a tit-for-tat trade war with the US.

The data means that Brazilian soybean exports during the first 11 months just came in under the 80 million mt at 79.63 million mt, while another 3.17 million mt is lined up at Brazilian ports to leave during December with most vessels bound for China.

That will mean that Brazil will have exported an estimated 83 million mt of beans by the end of the year, or 14.7 million mt more than over the same period last year, which was a record in itself.

Meanwhile, corn exports during November were up on the year as well, following disappointing monthly export figures over the past few months as ports focussed on soybeans instead.

November exports came in just under 4 million mt, 13.6% up on the year, bringing total 2018 exports so far to 19.9 million mt, with another 2.82 million mt lined up, mainly in the port of Santos, to leave during December.

That would place 2018 exports at 22.72 million mt, some 6.55 million mt behind last year’s progress.

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Grain markets wait and watch as tensions mount over Azov Sea

Black Sea grain markets were unmoved during early trade Monday despite increased tensions on the Azov Sea after the Ukrainian and Russian navies clashed on Sunday, sources have told Agricensus.

Several Ukrainian sailors were injured and three naval vessels were seized after a Russian tanker blocked access to the Azov Sea via the Kerch Strait on Sunday morning.

Global grain markets shrugged off the news, with the cash trade opting to sit back and watch the political situation unfold rather than moving bids and offers.

The bulk of Ukraine’s grain exports leave via ports in the south west of the country, with its Azov Sea ports accounting for just 6% of total grain volumes during October, according to port line up data.

Other markets were also calm, with Black Sea wheat and corn futures in the cleared and bilateral markets steady from Friday.

“Ukrainian clients don’t seem that worried, there’s not been any aggressive buying or selling so far,” one futures broker told Agricensus.

Major US wheat contracts were up in overnight trading, with SRW March up 1.1% to $5.1275/bu and HRW up 0.6% to $4.89/bu – although traded volumes were thin.

The ruble fell about 1% against the dollar over the weekend to 12-day lows, while the hryvnia was unchanged.

Operational

Freight markets were touted as the most likely to experience volatility in the short run.

“The main thing is that owners are not to willing to go to the Azov Sea because at any time the Kerch Strait may be blocked,” a Black Sea grain trader told Agricensus.

“This is going to be main obstacle, but it is all about how much people are going to be willing to pay for the freight,” he said.

There are potential longer-term operational implications should Kyiv pass an emergency security bill, with increased security and border checks likely to add to costs.

A proposal to introduce 30 days of martial law has been tabled by President Petro Poroshenko and is due to be voted on by parliament on Monday.

History

Access to the Azov Sea has threatened to be a flashpoint in tense relations between Moscow and Kyiv since Russia annexed Crimea in 2014, with an increase in tit-for-tat naval skirmishes seen this year.

In July, Ukrainian ministers called for international support after complaining that vessels docking in Mariupol and Berdyansk were being stopped and searched for several days at a time by Russian forces.

And in August, Ukrainian authorities seized a Russian-flagged oil tanker that docked in Kherson, claiming its owner was on a register of international sanctions.

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ANALYSIS: Three ways Brazil’s president elect could impact ag markets

An opponent of environmental protectionism, a proponent of free markets and backed by Brazil’s huge agriculture industry, in six weeks’ time President-elect Jair Bolsonaro will take office.

Voted in on a promise to clean up Brazil’s crime-ridden streets and corrupt politics, Bolsonaro’s convincing 55-45% second-round election victory is expected to see the country shift sharply to the right of the political and economic spectrum after four terms of left-wing governments.

With unemployment at 13% and a staggering 14 million people out of work, Bolsonaro’s priorities are to cap pension spending, reform the tax system and get one of the world’s biggest agrarian economies moving again after two years of recession.

Outlined below are three ways in which the president-elect could also have an impact on agriculture policy.

Scrapping the minimum freight table

Tearing up the previous administration’s policy on setting minimum freight rates for trucks could be a quick start for Bolsonaro and his pro-free trade economist and likely finance minister Paulo Guedes.

Last week Bolsonaro said that he personally was not in favour of the policy, which was passed in the summer this year as a way of appeasing truckers who were striking over higher diesel prices.

He said his team would propose a solution once he takes office.

“To negotiate and change the freight table won’t be easy even for the new government. Farmers might have big influence in Congress… but truckers (and transportation companies behind them) are able to stop the country, like they did in May,” said Daniele Siqueira, a consultant with Agrural.

However, the current macroeconomic picture may have made that choice easier for him.

With soybean prices at Brazilian ports nosediving on the expectation that a thaw in China-US relations might see the former turn to the latter for beans, Bolsonaro will likely come under huge political pressure from farmers to drop the freight plan.

And the latest currency and oil price moves could potentially switch lobbying power from truckers to farmers as diesel prices in domestic currency terms have fallen sharply.

With WTI at $55/bbl, international oil prices are now 15% cheaper than at the time of the strikes, while the real is largely unchanged after collapsing in Q3 then firming in Q4 after the election.

“Whatever the outcome, this will continue being a headache for Brazilian farmers and agribusiness (as it) is restricting deals in forward sales or sales for future delivery in the Brazilian soybean domestic market,” said Steve Cachia, an analyst at Curitiba-based brokerage Cerealpar.

Chances and impact: Possible and large

Export tax

Earlier this month, a biodiesel lobby group called on the government to slap a 10% tax on soybean exports in a bid to shore up crush margins in Brazil, which have suffered due to high soybean prices.

With exports of soybeans likely to increase 20% on the year to over 80 million mt due to rampant Chinese demand, crush rates have slowed in Brazil.

Yet this comes at the same time the country is increasing its biodiesel mandate, which is likely to boost demand for soyoil – a product of crushing beans.

With farmers seen to be turning in record revenue due to the high prices, the idea of an export tax was floated to boost crush margins and rates.

However, it is not seen as a priority for the current administration.

“It’s hard to know [what will happen]. There is a new government being formed. But the big crushers are the same guys who are the big soy exporters. These guys put a lot of money in assets to export soybeans. I don’t think it would be so good for them to lobby for this,” said one exporter in Brazil who declined to be named.

Furthermore, the issue of high soybean prices could be cured later this month should China and the US agree to unwind import taxes on each others’ goods at the G20 meeting in Buenos Aires.

And even if it is not, Bolsonaro is unlikely to do anything to annoy one of Brazil’s biggest trading partners when his priority is to boost trade.

“I don’t think he will take any step to endanger our relationship with China, for a very simple reason: Brazil is nothing without China, which is now our number one commercial partner, not only in soybeans, but in general,” said Agrural’s Siqueira.

“Bolsonaro might have said some silly things about China when he was a representative and during his presidential campaign, but now, as president-elect, he works with a very good team. People around him are aware of China’s importance and will help him keep a good relationship with the Chinese,” she said.

Chances: Unlikely and minimal

Opening up the Amazon

On the campaign trail, Bolsonaro promised to withdraw Brazil from the Paris Climate Accord, merge the nation’s agriculture and environment ministries and open up areas of the Amazon to mechanised agriculture, logging and mining.

He has said conservation reforms hinder economic development and that indigenous communities protected by them would much rather have “electricity, television, blonde girlfriends and the internet” than forests.

However, once in office, the rhetoric has calmed down, most notably on withdrawing from the Paris Climate Accord and backtracking on merging the ministries, the latter on lobbying by farmers.

Yet that hasn’t allayed fears in environmental lobbies who are concerned that he will backtrack on biodiversity commitments.

The biggest impact this policy could have on the international agriculture markets would be long-term and by expanding soybean production.

Under national legislation dating back to 1965, landowners must keep up to 80% of their land in the Amazon forested, sparking debate about the benefits of environmental protection and whether it hinders economic development.

However, the former army captain is keen to unwind the impact of that law on certain areas so mechanised farming, mining and logging can take place in certain areas and help the country kickstart the economy.

“Eventually a balance will have to be reached and this will depend on the agribusiness and environmentalist lobbies. One thing seems to be clear, the concept is to use the Amazon in a responsible and sustainable way, but also make it an instrument for economic growth,” Cachia said.

In any case, he could be hamstrung by Congress, where power lies for changing the legislation.

Regardless, a bigger threat to prices would be an improvement in yields rather than an expansion in area, observers say.

Chances and impact: Likely and minimal

 

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