Global oilseed markets: Resting on the sidelines amid turmoil and uncertainty

 

Chicago Board of Trade (CBOT) January 2023 soybean futures closed at about $14.
8375/bu on Friday, down 0.
3% from a week ago; The spot spot price of No.
1 yellow soybeans for the December schedule of the US Gulf was $16.
185 per bushel, up 0.
3%
from a week ago.
CBOT's March soybean meal was at $453.
5 per short tonne, down 3.
2% from a week ago; March soybean oil futures closed at 63.
08 cents a pound, up 6.
0% from a week ago; Euronext's February 2023 rapeseed futures closed at around Eur560/mt, down 1.
0%
from a week ago.
Intercontinental Exchange (ICE) canola for March closed at C$657/mt, down 0.
5% from a week ago; Argentina's upper river soybean FOB spot quotation was $625 per tonne (including 33% export tax), up 2.
3%
from a week ago.

 

The ICE dollar index closed at 104.
661 on Friday, down 0.
13%
from a week ago.

 

The Fed raised interest rates by 50 basis points, and a recession was imminent

 

The Fed on Wednesday raised its benchmark federal interest rate by 50 basis points to a range of 4.
25 percent to 4.
50 percent, the highest rate
since 2007.
Fed officials expect a median forecast of at least another 75 basis points of interest rate hikes next year, with the target rate rising to 5.
1% by the end of 2023 and falling to 4.
1% in 2024; Fed officials cut their 2023 U.
S.
GDP growth forecast to 0.
5% and slightly raised GDP growth to 0.
5%
in 2022.
The European Central Bank and the Bank of England also raised interest rates by 50 basis points each on Thursday and issued policy statements
similar to the Fed's continued rate hikes in 2023 to curb inflation.
Annual increases in U.
S.
consumer prices have eased to 7.
1 percent in November, down from a 40-year high of more than 9 percent earlier this year, but a growing number of economists expect aggressive rate hikes by the Federal Reserve to tip the U.
S.
into recession
next year.
Across the ocean, the world's second-largest economy, market attention remains focused on the uncertainty caused by the pandemic and related policies
.
A WHO spokesperson warned that as China optimizes its previous strict epidemic prevention and control measures, a very difficult period
will usher in the future.
Nevertheless, there are still many institutions that are optimistic about China's economic growth prospects
in 2023.

 

Argentina's second round of the Soybean Dollar program may not be as successful as the first

 

Argentina relaunched its Soybean Dollar program on November 28 to secure $30 billion in foreign exchange reserves
.
The mechanism allows soybean farmers and exporters to trade at an exchange rate of 230 pesos to 1 US dollar, higher than the current official exchange rate of 172 pesos but lower than the unofficial or black market rate
of 318.
The new exchange rate is 30 pesos higher than the first round of preferential soybean dollar in September, in line
with the peso's depreciation since September.
When Argentina implemented the first round of preferential exchange rates of 200 pesos, the official and black market rates were at 140 and 285 pesos
, respectively.

 

However, progress in the second round of soybean dollars has been relatively slow
.
Since November 28, farmers have sold only 2.
98 million mt of soybeans under the scheme, compared to 8.
48 million mt in the same period in September
.
Industry sources believe that soybean sales are unlikely to accelerate until the end of the second round of the soybean dollar program on December 31, as Argentine farmers either stock up on and sell to domestic oil mills
.

 

Argentine farmers' reluctance to sell soybeans may include two reasons: one is that the peso exchange rate has accelerated its decline, from 147 at the end of September to 172 pesos
now.
The first three quarters of the year were depreciated from 102 pesos to 147 pesos
.
Second, because Argentine farmers don't have as many soybeans in their hands, declining inventories have prompted farmers to slow sales
.

 

In addition, due to the limited number of export contracts from April 2022 to March 2023, Argentine trading companies have also recently adopted a wait-and-see attitude
.
The total number of soybean export registrations from December to January was only 28,000 tonnes, and there were no export registrations
before May.
Given the current adverse weather, the low production outlook and the possible delay in harvest have affected the willingness
of Argentine traders to participate in near-term shipping sales contracts.

 

Unlike in September, the export market is facing fierce competition
from Argentina's domestic crushing sector.
The Argentine government raised regulated prices for soybean oil-based biodiesel at the end of November, helping to restore soybean crushing margins, encouraging oil mills to bid high prices for feedstocks
.
Fears of a poor harvest in 2022/23 have also prompted oil mills to guarantee supplies
as early as possible.

 

The relative attractiveness of soybean prices in Argentina declined

 

Chinese buyers purchased about 3.
8 million mt of Argentine soybeans in the first round of the preferential dollar program, equivalent to the total
amount imported by Argentina in mid-2021.
But in the second round of dollar concessions since late November, Chinese buyers' interest in Argentine soybeans has dropped
significantly.

 

First, Argentine soybean prices are much more competitive on the international market than in the first round in September because of lower export supplies
.
Argentina's December soybean quotation at the end of November was $310/mt, in line with the US Gulf soybean quotation, compared with the US soybean price of $65/mt
three months ago compared to the US October soybean schedule.
This could lead most Chinese buyers to switch to alternative origins, as Argentina's offer was relatively higher than expected
compared to American or Brazilian products.
After all, Argentina's soy protein content averages 33.
3%, compared to 34.
8 and 35.
5 percentage points
in the United States and Brazil, respectively.
As a result, crushers must blend Argentine soybeans with other soybeans to produce 43% protein soybean meal, which requires additional steps, including peeling and drying before blending, which means higher operating costs and therefore discourages buyers
。 As a result, Chinese oil mills have ramped up purchases of soybeans from other sources, buying 30 cartons last week mainly for recent U.
S.
shipments, as U.
S.
soybean quotations fell from $350 in mid-October to $300/mt for the current January shipping schedule, which will arrive at Chinese ports during the Chinese holiday season in January-February next year, enough to meet domestic demand, as crushers usually slow down during the
holiday season.
Unless prices fall sharply, China is unlikely to buy more soybeans on the same schedule, suggesting that Argentine soybean sales are less likely
.

 

Second, Brazil's new bean production is expected to be bumper, with the U.
S.
Department of Agriculture and National Commodity Supply expecting Brazilian new bean production of 152 million tons and 153.
5 million tons, respectively, which may drag down global soybean prices next year and make buyers reluctant to actively purchase forward soybeans
.

 

Third, the long U.
S.
soybean export season this year, with the recent easing of logistics bottlenecks on the Mississippi River, soybean export shipments are beginning to show strength, and U.
S.
soybean supplies may increase in the coming weeks, also making buyers reluctant to buy Argentine soybeans
.