Global oilseed market: Oilseed prices fell as G2 double easing expectations roiled global markets

Global oilseed prices were volatile in the week ending Nov 11, 2022 as global markets (equities, bonds and commodities) priced in a possible easing of macro policy in the world's two largest economies, with signs of peaking consumer inflation in the US likely to prompt the Fed to ease monetary tightening, and China's announcement on Friday to optimize its epidemic control policies. The first week of winter in the northern Hemisphere brought a sense (or illusion) of warmth to markets, triggering a global rally that recouped some of the losses made earlier this week.

The Chicago Board of Trade's January 2023 soybean contract closed Friday at $14.50 per bushel, down 0.84 percent from a week ago. The average spot price of soybean No.1 for November shipping in the U.S. Bay was $16.265 per bushel, down 2.7 percent. CBOT's December soybean meal reported $407.40 a short ton, down 3.1 percent; December soybean oil settled at 76.97 cents a pound, down 0.3 percent. Euronext's February 2023 futures traded at 636.25 euros a tonne, down 4.3%. ICE January rapeseed traded at C $883.20 a ton, down 1.7%; Argentina's FOB spot price for Upper River soyabeans was quoted at $608 per tonne (including 33% export tax), down 1%.

The ICE dollar Index closed Friday at 106.164, down 4.2%.

Expectations of G2 double easing (monetary policy and pandemic policy) roiled global markets

'Global markets are pricing in expectations of a double pivot in the world's two largest economies,' said Susan Jeanette, an analyst at Derain Inc. This refers to expectations of monetary tightening in the largest economy and possible easing of anti-epidemic policies in the second-largest economy.

From the perspective of the US monetary policy, the Federal Reserve raised the interest rate by 75 basis points in November this year, raising the federal funds rate to 3.75% to 4%. This was the sixth rate hike since the start of the interest rate hike cycle in March, and the fourth consecutive rate hike by 75 basis points. The US borrowing cost rose to the highest since 2008. Global commodity futures have retreated broadly since March as higher borrowing costs increased the risk of a hard landing in the U.S. and could drag the global economy into recession. The Fed's aggressive rate hikes have lifted the dollar to a 20-year high and weighed on dollar-priced commodities.

With signs of an economic slowdown becoming more apparent, some market traders and analysts are looking for signs of a peak in U.S. inflation to prompt a shift in Fed policy, and this week's consumer inflation data from the Labor Department gave strong support to that expectation. The US consumer price index rose 7.7 per cent year-on-year in October, below the previous 8.2 per cent and the consensus of 7.9 per cent, and below 8 per cent for the first time in eight months, in the strongest sign yet that US inflation is peaking and reinforcing expectations that the Federal Reserve will scale back interest rate rises next month. The CME FedWatch tool showed Friday that markets were pricing in an 80.6% chance of a 50-basis-point rate hike in December, compared with a 19.4% chance of a 75-basis-point move.

In the world's second largest economy, markets have confirmed recent rumors of a policy shift. China's health commission announced Friday that it will optimize epidemic prevention and control measures based on the new transmission characteristics of the virus, including shortening the quarantine period of inbound passengers by two days, abolishing the circuit breaker mechanism for inbound flights, and no longer suspending international flights that bring infected cases into China. Domestic optimization measures include the cancellation of sub-dense and medium-risk areas, and generally no longer implement nucleic acid testing for all personnel in accordance with administrative areas. Markets responded positively, with energy, metals, agricultural and soft commodity markets all rising on Friday.

It is worth noting that, despite expectations of a G2 double easing, the real policy turning point may not come until March next year. Goldman Sachs expects benchmark rates to rise to 4.75% to 5% in March, the peak of this cycle. In China, Friday's change in the prevention and control policy was an optimization rather than the liberalization some had expected, given the severe spread of the disease during the winter. Of course, the market speculation expectations, now that winter has arrived, can spring be far behind? Expectations of a G2 double unwind will remain the two parallel threads of market speculation in the coming months.

When it comes to the oilseed market, Goldman Sachs analysts see the reopening of China having little impact on U.S. soybean fundamentals; A weaker dollar is likely to have a bigger impact in the future.

Summary of the USDA Supply and Demand Report for November

The USDA's November supply and Demand report shows the 2020/23 US soybean crop forecast at 4.35 billion bushels, up 33 million bushels from the previous month, as yields were revised up to 50.2 bushels per acre, up from 49.8 bushels per acre forecast last month. Soybean crushing was increased by 10 million pu to 2.245 billion Pu, an increase of about 2% year-on-year. Ending stocks were revised up by 20 million bushels to 220 million bushels, though still 20 per cent lower than the previous year, while soybean exports were expected to remain steady at 2.045 billion bushels. The U.S. soybean stocks-to-use ratio was 5%, down from 6.1% a year earlier. The average U.S. soybean farm price for 2020/23 is expected to be $14.00 per busload, unchanged from last month. The annual price of soybean oil was unchanged at 69 cents a pound; Soybean meal is expected to rise by $10 to $400 per short ton.

Global oilseed supply is sufficient, and the inventory usage ratio has been upgraded

This month the USDA forecast global oilseed production for 2020/23 at 645.6 million tonnes, down 1 million tonnes from the previous month, as the decline in soybean, sunflower and cottonseed production outpaced the increase in rapeseed production, but was up 6.8 per cent from the previous year, mainly due to the increase in soybean and rapeseed production; Ending inventories are forecast at 121.94 million tonnes, up 1.38 million tonnes from the previous month and 7.4% from the previous year. The inventory-to-use ratio was 22.8 per cent, up from last month's forecast of 22.5 per cent and 22.1 per cent in 2021/22.

Global meal production was revised lower this month, while consumption remained unchanged, inventory usage narrowed to 5.27% (5.61% last month vs. 5.04% last year); Global vegetable oil production was slightly revised down, while consumption was slightly revised up, bringing the inventory consumption ratio down to 14.17% (14.37% last month vs. 14.31% last year).

If the US is excluded, the output of oilseeds and finished products in the rest of the world is lower than last month, and the consumption of oilseeds is lower, which increases the inventory consumption ratio to 24.37% (24.16% last month, 23.31% last year). Both oil meal and vegetable oil use were slightly revised, resulting in a decrease in the final inventory use ratio to 5.84% (6.20% last month vs. 5.59% last year) and a decrease in vegetable oil inventory use ratio to 14.86% (15.08% last month vs. 14.94% last year).

This month cut its 2020/23 global soyabean production forecast by 500,000 tonnes to 390.5 million tonnes, mainly due to a cut in Argentine production to 49.5 million tonnes, 1.5 million tonnes lower than the previous month, to reflect the impact of dry weather. But global soybean production will still rise 9.8% year on year. Brazil's soyabean production forecast was unchanged at 152 million tonnes.

The global sunflower seed production forecast for 2020/23 has been revised down to 51.3 million tonnes, also down from 57.32 million tonnes in the previous year, mainly because Ukraine's sunflower seed production is expected to fall to 10.1 million tonnes, down from 17.5 million tonnes in the previous year. Global ending sunflower seed inventories are estimated at 6.64 million tonnes, down 17.9% year-on-year. That means an inventory-to-use ratio of just 11.5%, down from 14.5% a year earlier.

The U.S. Department of Agriculture raised global rapeseed production for the fourth month in a row, but lowered inventories instead

This month the US Department of Agriculture raised its global rapeseed production forecast for the fourth month in a row to a record 84.816 million tonnes in 2020/23, up 1 million tonnes from the previous month and 14.81 per cent from 73.86 million tonnes last year, as the European Union raised 350,000 tonnes and Australia raised 660,000 tonnes. Global consumption was revised up by just 487,000 tonnes. However, inexplicably, the end stock of rapeseed was reduced by 81,000 tons from 7.244 million tons to 7.163 million tons, 64.3 percent higher than the previous year's 4.36 million tons and also the highest in three years. According to the latest US Department of Agriculture estimates, the global canola stocks-to-use ratio is 8.9%, while the latest Agriculture Canada (AAFC) forecast is only 2.6%.

Grain shipments plunged 49% as rain in the Midwest raised the Mississippi River

U.S. grain transportation costs for the week ended Nov. 8 were $40.74 a ton, down 49% from a week earlier and the lowest since the week ended Sept. 20, according to the U.S. Department of Agriculture. The price is down 62% from October's all-time high of $105.85 a ton, as recent rains in the Midwest have pushed up water levels in some rivers. Barge rates are down, but they are still 145% higher than a year ago.

The pace of U.S. soybean exports is sluggish

The US Department of Agriculture's weekly export sales report showed net sales of 202/23 soyabeans in the week ended November 3 were 790,000 tonnes, down from 83 tonnes a week earlier. Of that, net sales to China were 927,000 tonnes, up from 745,000 tonnes last week and down slightly from 940,000 tonnes in the same period last year. Total US soybean export sales (both loaded and unloaded) for 202/23 to date were 33.09 million tonnes, down 0.4 per cent from a year earlier, compared with a 0.9 per cent increase the previous week. The sales volume to China was 19.42 million tons, up 7.2% year on year.

In its November supply and demand report, the USDA projected U.S. soybean exports in 2020/23 at 55.66 million tons, down 5.2% from the previous year. China imported 98 million tons of soybeans, up 7.0 percent from 91.57 million tons in 2021/22.

It should be noted that the outlook for China's soybean import demand is constrained by geopolitics and supply chain adjustments. In the future, China is likely to continue to consolidate and strengthen trade relations with South America while increasing domestic production. China's soybean production hit a record high this year due to expanded acreage and higher yield per unit area, the head of the China Soybean Industry Association said on Thursday. The Ministry of Agriculture expects China's soybean production to reach 19.8 million tons in 202/23, up 18.8 percent year on year.

The U.S. soybean harvest is nearing its end and crushing is expected to soar

As of Nov. 6, the U.S. soybean harvest was 94 percent complete, compared with 88 percent a week earlier, 86 percent a year earlier and a five-year average of 86 percent progress. Processing volume growth was boosted by high US soybean crushing margins.

Theoretical processing profits for U.S. soybeans were $5.20 a bushel for the week ended Nov. 4, down 1.7 percent from a week earlier but still at record highs.

The National Oilseed Processors Association (NOPA) will release its monthly report next Tuesday. Us soyabean crush in October likely rose to the fourth-highest level on record for any month as processing plants received a flood of new beans.

According to a survey, NOPA member companies will process 184.464 million pu of soybeans in October, up 16.7 percent from 158.109 million pu in September and 0.3 percent higher than the crush of 1839.93 million pu in October 2021. That would be the second-highest squeeze on record for the same period, just below October 2020. Analyst estimates ranged from 175 million to 191.34 million pu, with a median of 185 million Pu. The crush volume in October was equivalent to 5.95 million bushtails per day, the highest daily crush volume since December 2021.

Soybean oil inventories at NOPA member companies are expected to rise to 1.535 billion pounds as of Oct. 31, up 5.2% from a two-year low of 1.459 billion pounds at the end of September, but down 16.3% from 1.834 billion pounds at the end of October last year. Forecasts ranged from 1.425 billion pounds to 1.7 billion pounds, with a median of 1.53 billion pounds.

Brazil's biodiesel blending target may be raised

The Brazilian biodiesel industry is optimistic that the newly elected government of President Luiz Inacio Lula da Silva will restore the original blending schedule of the Brazilian government, which will increase the biofuel blending ratio of diesel fuel to 14% in January 2023 and 15% from March. Brazilian biodiesel will be blended at 10%, or B10, in 2022, down from the original blending rate of 13% as soyabean and soyoil prices rose near record highs.

According to ABIOVE, Brazil's vegetable oil industry association, if the blending rate is increased to B14, Brazil would need to process 50 million tonnes of soyabeans, exceeding the previous record of 49 million tonnes in 2022. The Brazilian soybean industry is well positioned to meet this demand, as soybean processing capacity reaches 64 million tons, while soybean production will exceed 150 million tons in 202/23. ABIOVE expects Brazil's soyoil exports to reach 2.2 million tons in 2022, up 10.6 percent from a year earlier, as the Russia-Ukraine conflict disrupts exports from the Black Sea and creates a global shortage of sunflower oil supplies.

According to the Brazilian Association of Biofuel Producers (Aprobio), domestic soy demand could increase by about 51 percent in 2023 if the biofuel blending adjustment schedule is reinstated. Soybean use for biodiesel production will increase from 19.8 million tonnes (B10) in 2022 to approximately 30 million tonnes in 2023, assuming B15 is implemented through most of 2013.

Brazil's growing domestic consumption of soyoil will constrain export supplies

Caramru, Brazil's leading soybean crusher, plans to increase biodiesel production and sales by as much as 40 percent if the government raises the biodiesel blending ratio to 15 percent (B15) next March, as has been rumored, according to Janina Lemes, an official at the company. Carumulu expects total biodiesel sales in Brazil to be about 9.03 billion liters next year, up from 5.64 billion liters in 2022 (the mandatory blending ratio is 10% this year). If B15 is implemented through most of 2023, the use of soya oil for biodiesel production could rise to 8.13m tonnes, up from 5.08m tonnes this year, Mr Rhimes said. If the biodiesel industry uses more soyoil, Brazil's soyoil exports could fall to 300,000 tonnes next year, well below the 2.2 million tonnes expected in 2022. She said the company would first meet domestic demand before exporting.

Argentina has run out of foreign exchange and may introduce a soya dollar policy again

Argentina's central bank's reserves have come under renewed pressure as farmers significantly slowed the pace of soya sales after the end of incentives in September; A severe drought has halved wheat production and affected corn seeding, dimming prospects for foreign exchange earnings from grain exports. Market rumours that Argentina may consider introducing a new preferential exchange rate for soyabeans in December to boost foreign exchange earnings from soyabeans are true.