Global oilseed markets: liquidity policy games and South American weather will lead the way

 

Chicago Board of Trade (CBOT) January 2023 soybean futures closed at about $14.
3625/bu on Friday, up 0.
6% from a week ago; The spot price of No.
1 yellow soybeans for the November schedule of the US Gulf was average at $15.
80 per bushel, down 0.
52%
from a week ago.
CBOT's January soybean meal was at $406.
30 per short tonne, up 0.
05% from a week ago; January soybean oil futures closed at 71.
71 cents a pound, up 1.
6% from a week ago; Euronext's February 2023 futures closed at around Eur590/mt, down 3.
3%
from a week ago.
Intercontinental Exchange (ICE) canola for March closed at C$805.
60/mt, down 4.
9% from a week ago; Argentina's upper river soybean FOB spot quotation was $592 per tonne (including 33% export tax), down 0.
67%
from a week ago.

 

International crude oil futures fell for the third week in a row this week, mainly because Europe proposed a higher-than-expected price cap on Russian crude, but still failed to reach an agreement on Friday; The severe epidemic situation in China, the top crude oil importer, may affect energy demand and weigh on oil prices
.
The West Texas Intermediate (WTI) January contract on the New York Mercantile Exchange (NYMEX) closed at $76.
28 a barrel, down 4.
8 percent
from a week ago.
Brent crude futures, the global benchmark, for February, were at $83.
71 a barrel, down 4 percent
from a week ago.

 

The ICE dollar index closed at 105.
917 on Friday, down 0.
85%
from a week ago.

 

Liquidity policy game

 

As global geopolitical conflicts worsen, the global economic outlook is even bleaker
.
The Institute of International Finance (IIF) said the world economy will be as weak next year as it was in 2009 after the financial crisis
, as the conflict in Ukraine threatens to become a "protracted war.
" Bank of America's 2023 market outlook report shows that the US, Europe and the UK will experience recessions in the coming year, although Bank of America is relatively optimistic about China's outlook, believing that China's reopening from the pandemic will bring China's GDP growth to 5.
5%, up from 3%
expected in 2022 。 It is foreseeable that for the rest of this year and even early next year, global financial and commodity markets will continue to play around the liquidity policies of the world's two largest economies, and traders will continue to bet that the monetary tightening policy of the US central bank and China's epidemic prevention and control policy will be relaxed, and a double policy shift
will be achieved in the spring or second half of next year.

 

The pace of U.
S.
soybean exports has slowed

 

U.
S.
2022/23 soybean net sales of 690,000 mt, a nine-week low, and 2023/24 net sales of 10,000 mt, totaling 700,000 mt, down from 3.
03 million mt
the previous week, according to the USDA's weekly export sales report.
Sales to China were 720,000 tonnes that week, compared with 1.
54 million tonnes last week and 880,000 tonnes
in the same period last year.
Total U.
S.
soybean export sales (loaded and unshipped) so far in 2022/23 were 36.
6 million mt, up 1.
4% year-on-year and up 4.
2%
year-on-year the week before.
Among them, sales to China were 22.
67 million tons, an increase of 9.
9% year-on-year, and an increase of 11.
2%
in the previous week.

 

Analysts at Chicago Agricultural Resources believe China is close to completing purchases of U.
S.
soybeans
.
The recent severe epidemic situation in China may adversely affect
the procurement of South American soybeans.
Against the backdrop of slowing demand for U.
S.
soybean exports and weather conditions that favor Brazil's soybean production on track for record highs, the company recommends selling
while CBOT soybean futures rebound.

 

Argentina relaunches soybean dollar exchange rate to spur soybean sales, accelerating the pace of soybean sales, Argentine Economy Minister Sergio Massa announced on Friday that from November 28 to December 31, a special exchange rate of 230 pesos to the dollar will be implemented for soybean and derivatives sales, which means that every dollar sold can be nearly 40% more than the current official exchange rate of 165 pesos
.
The Argentine government and exporters reached an agreement to bring in $3 billion in foreign exchange earnings
.
Between September 5 and 30, the Argentine government implemented a preferential soybean exchange rate of 200 pesos, which would increase its income by 43% compared to the official exchange rate of 140 pesos at the time, prompting farmers to sell 13.
9 million tons of soybeans and bringing the government $8 billion in revenue
.

 

Drought in Argentina has left soybean farmers at a loss

 

The Argentine government's preferential exchange rate has also helped mitigate the impact
of drought on farmers.
The ongoing drought in Argentina's main agricultural producing regions is affecting soybean planting and early growth
.
Argentina's 2022/23 soybean planting progress was only 19.
4 percent as of Nov.
23, 19.
9 percentage points
behind the same period last year, according to the Buenos Aires Grain Exchange.
As rainfall remains scarce in the coming days, some farmers may not be able to complete their planting plans
.

 

Analysts at the Rosario Grain Exchange looked at three achievable yields for 2022/23, which are 4.
5 tonnes, 3.
5 tonnes and 2.
5 tonnes
per hectare.
Only in the first case, both homesteaders and rental growers can make money
.
But if the yield is between 2.
5 tonnes and 3.
5 tonnes, the loss of leased land will fluctuate
between $150/ha and $450/ha.

 

The exchange report states that if they are farmers with farmland, soybean yields of 1.
8 tonnes/ha can be profitable
.
However, in the case of leased land, the yield needs to reach 4 tonnes/ha to break even
.
Importantly, 70% of Argentina's soybean production comes from leased farmland, and rental costs have risen by 0.
2 tonnes/ha
this year.

 

The arrival of soybean imports from China is expected to increase by the end of the year

 

Customs data showed that China imported 4.
14 million tonnes of soybeans in October, the lowest monthly import since 2014
.
China's soybean imports in the first 10 months of this year were 73.
18 million tonnes, down 7.
4% year-on-year, as domestic soybean crushing profits were meagre or even losses for much of the year, limiting import demand
from oil mills.
But China's soybean imports in November and December will be between 16 million and 18 million tonnes combined, helping to boost soybean crushing, which is expected to reach more than
2 million mt per week in December and January.
Soybean prices also showed a downward trend last week, with CFR prices for imported soybeans arriving in China on November 22 at $623.
27/mt, down 5.
8% from the previous week and 4.
1%
from a month ago.
However, the limited supply of old crops in South America supports the cost of soybean
imports.
From the perspective of soybean meal, since November 10 soybean meal prices hit a historical peak of 5660 yuan / ton, with the increase in crushing volume, soybean meal prices under pressure downward, November 22 North China soybean meal spot price of 5000 yuan / ton, down 9% from a week ago, the weekly soybean crush increased from 1.
3 million tons the previous week to 1.
5 million tons, this week soybean crush is expected to reach 2 million tons
.

 

Brazil's biodiesel program has had twists and turns

 

On Monday, President Bolsonaro's National Energy Policy Council (CNPE) announced that Brazil will maintain the mandatory blending rate of biodiesel at the current 10% until March 31, 2023, and increase it to 15% from April 1; It was also announced that fuels produced on other technical routes would be allowed to participate in the forced blending project, which means that Petrobras' R5 diesel (which contains 95% diesel and 5% vegetable oil) can also be used as biodiesel
.
These policies have sparked fierce opposition from the Brazilian industry, which has been expecting the government to increase the blending rate to 14% from January next year and 15% from March, in accordance with the roadmap introduced in 2018; At the same time, it is opposed to considering R5 diesel produced through the joint processing process as biodiesel, arguing that such co-processed diesel is not a biofuel
.

 

Members of Brazil's next president, Lula, in the transitional government said the new government would veto the policies
after taking office in January.
On Friday, President Bolsonaro issued an order rejecting CNPE's content that other technical routes can participate in the forced blending program, but confirmed that the 10% blending rate
will continue in the first quarter of next year.
Regardless of the new government's policies, one thing is certain: Brazil's use of soybeans and soybean oil for biodiesel production will surge next year, limiting the export of
soybean oil.

 

South American soybean production expected to increase by 20% in 2022/23

 

Analyst firm DATAGRO this week expects South American soybean production of 218.
16 million mt in 2022/23, down from 219.
34 million mt forecast in September but still up 20% from 181.
76 million mt in 2021/22, mainly due to a record 66.
85 million hectares planted, 1.
1% higher than the initial forecast and 5% year-on-year, which would also be the sixth consecutive year of area growth
.

 

DATAGRO EXPECTS BRAZIL'S PRODUCTION TO BE 153.
32 MILLION TONS, UP 11% YEAR-ON-YEAR, AS THE PLANTED AREA GROWS FOR 16 CONSECUTIVE YEARS; Argentina production is expected to be 46.
98 million mt, up 9% year-on-year, as planted acreage is expected to increase to 17 million hectares this year after two consecutive years of decline, up from 16.
2 million hectares the previous year; Paraguay production is expected to be 10.
92 million tons, an increase of 120%
year-on-year.
Bolivia's production is expected to be 3.
5 million tonnes, up 3% year-on-year; Uruguay production is expected to reach a record 3.
43 million mt, up 4%
year-on-year.

 

While several agencies are currently optimistic about South America's production outlook, last year's experience tells us that a drought in December could lead to a plunge of more than 10 million tonnes
of Brazil's soybean production potential.
While the weather for this year's growing season is generally more favorable than last year, the weather in South America remains generally dry, and despite recent rainfall, the weather in Argentina and southern Brazil remains dry
.
As Cargill CEO David McLennan recently pointed out, severe crop cuts in both North and South America will push prices up again
.
This means that in the coming month, the market will also pay close attention to the South American weather as it hits around macro liquidity policy, and any adverse weather forecast may trigger a knee-jerk price response
.