Global oilseeds market: Oilseeds into a volatile period, assessing South American production and spring seeding prospects

In the week ending March 3, 2023, global oilseed prices jumped and fluctuated, just as February and August were hot and cold. The market continues to assess the extent to which crop cuts in Argentina and southern Brazil will affect total South American production, with the pace of Brazilian soybean exports falling short of earlier expectations due to slow harvests and logistical difficulties. Soyabeans are likely to swing broadly around $15 ahead of the northern Hemisphere spring planting season.

The May 2023 soybean contract on the Chicago Board of Trade closed Friday at $15.1875 a barrel, down 0.03 percent from a week ago. The average spot price of yellow soybeans for the March shipping date No.1 was 16.22 dollars per pu (596.0 dollars per ton), up 0.12 percent from a week ago. CBOT's May soybean meal reported $481.30 per short ton, up 0.27 percent from a week ago. May soybean oil settled at 61.19 cents a pound, down 0.05 percent from a week ago. Euronext May rapeseed delivery was at 538.50 euros a tonne, down 0.6 percent from a week ago. Ice May rapeseed closed at C $822.50 / ton, up 0.34% from a week ago. Argentina's FOB spot price for Shanghe soybeans was $619 per ton (including 33% export tax), down 0.48% from a week ago.

Macro - level factors are intertwined

The Fed will hold a policy meeting on March 21-22, at which investors now mostly expect the central bank to raise interest rates by a quarter point. With strong US Labour market data and better-than-expected inflation figures, US money market traders are pricing in at least three more quarter-point rate rises this year, with rates peaking at 5.43 per cent by September. On Friday, Thomas Barkin, president of the Federal Reserve's Richmond branch, even envisaged rates as high as 5.5 percent to 5.75 percent. In Europe, expectations of an interest rate rise by the European Central Bank grew after consumer inflation beat expectations in France, Spain and Germany. The European Union's statistics agency estimated that euro-zone inflation rose to 8.5% in February, above the expected annual rate. The ECB is now expected to raise rates to 4%.

In contrast to high inflation, higher interest rates and the prospect of recession in the United States and Europe, China's economy is rebounding strongly, with manufacturing activity growing at its fastest pace in more than a decade in February. China's GDP growth target for 2023 was set at 5% over the weekend, up from 3% in 2022. For now, most analysts think that target is conservative. China's growth will help boost demand for commodities, including agricultural products, and draw more money into the pool of funds for commodity futures, potentially supporting commodity prices.

South American soybean production still has room to decline

Over the past week, South American soybean yields have remained the subject of intense market scrutiny. Several private analysts have revised their 2020/23 soyabean production estimates in the coming week as the US Department of Agriculture and others release official production estimates. Among them, PAN on Monday forecast a crop of just 148 million tonnes, down from an earlier estimate of around 150 million tonnes, due to heavy rainfall in some areas. The lack of rainfall in Rio Grande do Sul appears to be the only one so far forecasting Brazilian soyabean production below 150m tonnes. Datagro on March 1 projected 2020/23 soybean production at 150.8 million tonnes, down from its January forecast of 152.08 million tonnes, mainly due to lower yield potential per unit area due to dry weather in Rio Grande do Sul. The lower yield is 16.3% higher than last year's crop of 129.65 million tonnes, which was severely damaged by drought. Safras& Mercado, another firm, on March 3 estimated Brazil's soybean production at 152.43 million tons, 0.6 percent lower than its January estimate. In contrast, StoneX has revised Brazilian soyabean production to 1546.63 million tonnes, 0.3 per cent higher than its earlier forecast of 154.209 million tonnes and 21.6 per cent higher than 2021/22. StoneX says that while soybean production in Rio Grande do Sul has been hurt by the dry weather, production growth in the Midwest and Matopiba has more than offset the decline in Rio Grande do Sul.

On March 2, the Buenos Aires Grain Exchange said it would cut its forecast for Argentina's soyabean production for the fourth time as hot and dry weather over the past week continued to affect the soyabean crop, 62.2% of which is still at its critical yield stage. On Feb. 23, the exchange cut its forecast for Argentine soybean production to 33.5 million tons. The exchange said this year's crop was likely to be worse than 2007/08, when drought caused only 32 million tonnes to be produced.

Usda supply and demand report will lower South American soybean production

South America's three leading soybean producers -- Brazil, Argentina and Paraguay -- are expected to produce a combined 204 million tons of soybeans in 2020/23, up 26.4 million tons from 2021/22, based on the USDA's February forecast. Assuming the USDA downgrades Argentine soyabean production by 7 million tonnes to 34 million tonnes and Brazilian soyabean production by 4 million tonnes to 149 million tonnes, the three South American countries would still produce 193 million tonnes, up 15.4 million tonnes or 8.7 per cent from the previous year.

On March 8th the USDA will release its monthly supply and demand report. Analysts on average expect Argentina's soybean production to be cut to 36.65 million tons, down 4.35 million tons from February's forecast. Analysts have lowered estimates by 1 million tons to 9 million tons. In addition, analysts on average expect Brazil's soyabean production to be revised down slightly by 100,000 tonnes, though analysts' views on Brazil's soyabean crop vary widely, from an upward forecast of 2m tonnes to a downward forecast of 2m tonnes.

Brazil's soybean exports were sluggish in the first two months of the year

It should be noted that the pace of Brazilian soybean exports was sluggish in the first two months of this year. Exports in January and February combined were about 6m tonnes, down 31 per cent from a year earlier. In addition to the slow pace of Brazil's soybean harvest, farmers' reluctance to sell and high logistics costs are also preventing Brazil's soybean exports from accelerating.

China is rumoured to be selling back Argentine soybeans

Rumours circulated earlier this week that Chinese buyers had recently switched at least 500,000 tonnes of Argentine soyabeans to cheaper Brazilian soyabeans, saving about $50 a tonne as March deliveries were cheaper. As of March 1, soybeans from Argentina's Upper River were quoted at $610 a ton, while soybeans from Brazil's Paranagua port were at $553 a ton, according to the International Grains Council. Bay soybean quoted at $589 / ton.

With Brazilian soyabean production set to hit a record high this year and Argentine soyabean production likely to fall to a 14-year low, widening the price gap between Brazilian soyabean and Argentine soyabean prices, China Grain Storage is rumoured to be selling back about 1m tonnes of soyabean to Argentine crushers. Argentina's soybean crushers are running short of supplies as farmers hold back. The market expects a significant increase in Argentine soybean imports this year. The USDA expects Argentina to import 6.25 million tons of soybeans in 202/23, up 63 percent from the previous year. Many analysts consider that a conservative forecast. If production projections from the Buenos Aires Grain Exchange materialize, Argentine soybean imports could reach as high as 9 million tons.

Argentina's government will begin a third round of a dollar program to encourage farmers to speed up sales of soybeans in the coming months, participants at the Global Grains and Feed Asia conference in Singapore said on March 2.

U.S. soybean exports are seasonally slow

U.S. net soybean sales for 2020/23 were 360,000 tons in the week ended Feb. 23, a new low for the year, according to the USDA's Weekly Export Sales Report. Net sales for 2023/24 were 13.4 MT, with total sales approaching 500,000 MT, down from 560,000 MT a week ago. Total soybean export sales for 2020/23 year to date were 48.81 million tons, down 2.7% year on year (down 1.5% last week). The USDA is forecasting an annual export target of 54.16 million tons, down 7.8 percent from a year earlier. Year-to-date US soybean sales to China totaled 30.22 million tons, up 15.4% year on year (up 14.5% year on year last week); The US Department of Agriculture forecasts Chinese imports of 96m tonnes, up 4.8% from a year earlier.

Competition for spring sowing could spur stronger soybean prices

At the end of February, the USDA projected 87.5 million acres of U.S. soybean planted in 2023/24, unchanged from 2020/23 and below analysts' expectations of 88.6 million acres. For comparison, corn acreage is expected to reach 91 million acres, up 2.4 million acres or about 3 percent from a year ago. Before spring planting began, soybean prices rose relative to corn, helping soybeans to compete for spring planting acreage. Chicago soybeans were little changed over the past week, while corn fell 1.5 percent.