Global oilseed market: Soybeans rose for four consecutive years, and bulls and bears watched the ebb and flow

 

Chicago Board of Trade (CBOT) March 2023 soybean futures closed at about $15.
24/bu on Friday, up 2.
7% from a week ago and 20.
7%
year-on-year 。 The average spot quotation of No.
1 yellow soybeans for the January shipping schedule of the US Gulf was $16.
5175 per bushel ($606.
9 per tonne), up 2.
5% from a week ago and 19.
5% year-on-year; CBOT's March soybean meal was at $471 per short tonne, up 4.
4% from a week ago and up 24.
0% year-on-year; March soybean oil futures closed at 64.
07 cents a pound, down 0.
9% from a week ago but up 16.
5% year-on-year; Euronext's February rapeseed futures closed at about 584.
25 euros/mt, up 3.
1% from a week ago and down 22.
5% year-on-year; ICE Canola for March closed at C$865.
8/mt, up 0.
13% from a week ago and down 14.
5% year-on-year; Argentina's upper river soybean FOB spot quotation was $615 per tonne (including 33% export tax), down 1.
6% from a week ago and up 4.
8%
year-on-year.

 

The ICE dollar index closed at 103.
269 on Friday, down 0.
7 percent from a week ago and down 2.
2 percent on a monthly basis, but up 7.
9 percent year-on-year, its biggest annual gain since 2015
.

 

Feng shui takes turns, ebb and flow

 

The trend of the global oilseed market in 2022 may be described as the rotation of feng shui, the once glorious leading varieties are now at the bottom, while the once bottom varieties have become the leading stars
of 2022.
Canola shined in 2021, with European canola up 80% and Canadian canola up 70%, but it was reduced to leading the decline
in 2022.
Palm oil, which led the gainer in 2021, also turned lower
in 2022.
Correspondingly, the only variety that fell in 2021, soybean meal, turned into the leading variety
in 2022.

 

Soybeans and soybean oil have been able to rise continuously in the past two years, and crude oil and the dollar have also risen
for two consecutive years.
The main factors supporting the rise in oilseeds in 2022 include a sharp cut in soybean production in Brazil at the beginning of the year and the Russia-Ukraine conflict disrupting oilseed and vegetable oil exports
.
But as aggressive interest rate hikes by the Federal Reserve boosted the dollar, China's squeeze on thin profits led to a decline in import demand, a major headwind
to curb the rise in oilseed prices.
Looking ahead to 2023, with soybean production in Brazil, the number one exporter, in sight, and global oilseed supply and demand easing mean that the center of gravity of soybean prices tends to shift? Especially if the weather pattern turns to El Niño in the second half of the
year.

 

Argentine weather is in the spotlight

 

Rainfall has recently occurred in Argentina's agricultural regions, which is expected to ease the drought.
But actual rainfall missed most of the arid areas, meaning soybean planting and yield potential were lost
.
The Buenos Aires Grain Exchange said on December 29 that Argentina's soybean planting progress was 72%, 9.
2%
behind the same period last year.
Argentina needs more rainfall as soon as possible so that drylands can resume field operations, otherwise farmers could abandon 500,000 hectares of soybeans
, the exchange said.
Currently, the exchange estimates Argentina's soybean area at 16.
7 million hectares
.

 

According to the Rosario Grain Exchange, due to three consecutive years of La Niña, soil moisture in Argentina is now lower than in 2008/09, and cereal and oilseed production may fall to the lowest level
in 20 years.
In 2008/09, Argentine farmers harvested only 31 million tonnes of soybeans
.
The exchange does not expect Argentina to produce more than 48 million mt
of soybeans this year.
If the drought further delays planting, yield expectations may be adjusted
.

 

U.
S.
soybean exports were higher than a year earlier

 

U.
S.
soybean export net sales were 706,000 mt in the week ended Dec.
22, down from 876,000 mt a week ago but up from 524,000 mt
a year earlier, USDA export sales data showed.
So far in 2022/23 (September 1 to December 22), total US soybean export sales (shipped and unshipped) were 43.
11 million mt, up 4.
3% year-on-year, compared with a 4.
1%
increase the previous week.
For comparison, the USDA forecasts U.
S.
soybean exports for 2022/23 at 55.
66 million mt, down 5.
2%
from 58.
72 million mt the previous year.
Year-to-date, U.
S.
sales to China were 25.
7 million tons, up 9.
7% year-on-year, up 9.
8%
the week before.
In its December 2022 supply and demand report, the USDA forecast China's soybean imports in 2022/23 were 98 million mt, up 7.
0%
year-on-year.

 

With the Brazilian soybean harvest on the market, the pace of U.
S.
soybean exports is likely to slow
seasonally in the coming months.

 

China's oilseed processing interest rates have improved, and the outlook for import demand is positive

 

For most of 2022, China's soybean import demand was weak because of thin or even loss
profits from oilseed processing.
Heading into the fourth quarter, soybean processing margins improved
.
Bunge expects demand for grains and oilseeds to pick up and soybean crushing margins to improve
as China eases pandemic restrictions.

 

China's soybean imports will reach 98 million mt in 2023 (January-December), up 8.
3% year-on-year, according to a December 9 S&P Global Platts survey of more than 10 industry players, as soybean processing margins improve, demand from the animal feed industry rises, and China needs to replenish national reserve stocks
.
Analysts believe that the size of China's soybean imports depends largely on replenishment demand
.
Industry insiders estimate that after multiple rounds of soybean auctions in 2022, up to 7 million tons of stocks
will need to be replenished in 2023.

 

China's National Health Commission said on December 26 that China will stop requiring inbound travelers to undergo quarantine from January 8, also triggering expectations for a recovery in China's economy and demand for goods
.
However, the surge in cases everywhere has put pressure on the healthcare system, creating uncertainty
about the timing of the recovery in demand for goods.

 

The share of soybean meal in crushing profits recovered growth

 

Chicago soybean meal futures rose 4.
4 percent over the past week, mainly due to worrying weather in Argentina, the top exporter of soybean meal, and domestic and foreign soybean meal demand remained strong, which helped raise the share of soybean meal in crushing profits to 59.
5 percent, up from 53.
8 percent
a month ago.
Typically, about 70% of soybean crushing profits come from soybean meal and 30% from soybean oil
.
For most of this year, soybean oil has been unusually strong, bringing its share to more than
half.
But soybean oil prices also fell as the U.
S.
Environmental Protection Agency's lower-than-expected biofuel blending targets prompted speculative funds to retreat sharply from Chicago soybean oil futures, falling 8.
9 percent
in December.
The position report showed that the fund's net long orders on Chicago soybean oil futures and options fell to 65,587 contracts as of Dec.
27, a decrease of about 40,000 lots or 40%
from the end of November.

 

The outlook for renewable diesel remains positive and will support soybean oil prices

 

While the EPA's biofuels policy has left market analysts pessimistic, such as JPMorgan analysts, who believe there may be a supply of renewable diesel in the United States, some companies may delay or cancel capacity expansion plans
.
But U.
S.
crushing giants continue to be bullish on the industry's prospects
.
Bunge CEO Greg Heckman said last week that U.
S.
renewable diesel capacity will reach about 5 billion gallons by 2024, up from about 2 billion gallons
today.
He said Bunge has not changed his capacity plans because of the EPA's biofuel blending proposal because demand continues to rise
.

 

There really isn't any sign yet that the industry will slow down
.
Nearly half of U.
S.
soybean oil in 2022 will be used to make renewable diesel and other biofuels
.
With the rapid growth of renewable diesel capacity, this share is expected to increase
further.
The reason why renewable diesel has become the new favorite of biofuels in the United States is mainly due to California's tax incentives
.
If all the renewable diesel projects currently planned come online, adding 2.
5 billion gallons of renewable diesel capacity would consume about 20 billion pounds of additional soybean oil, which the U.
S.
now produces about 26 billion pounds of soybean oil
annually.
It can be seen that the increased demand for soybean oil from renewable diesel will maintain support for soybean oil prices
.

 

The easing of global soybean supply and demand in the coming year may put pressure on soybean prices

 

Despite the recent drought in Argentina, a bumper soybean harvest in Brazil is expected to fully offset these potential supply
declines.
Analysts at GRO Intelligence pointed out that as the Brazilian soybean growing season progresses, the risk of drought in Brazil has weakened, soil moisture is higher than last year, and cumulative rainfall is near
the highest in 20 years.
In contrast, drought in Argentina has caused the local soybean vegetation health index to fall to its lowest level in more than 20 years, and soybean production is expected to hit a five-year low
.
GRO Intelligence believes that record Brazilian soybean production will play a decisive role, and global soybean ending stocks are expected to increase
in 2022/23.
The global soybean stockpile-to-use ratio, a key indicator of supply and demand, will pick up
in 2022/23 after several years of significant declines.

 

From the supply and demand side analysis, if there is no unexpected severe weather in the next few weeks that causes Brazil's production to be significantly reduced, it will be difficult for global soybean prices to remain at their current high levels; Conversely, any headlines with unfavorable weather could push soybean prices further to challenge $16
.