After last week’s swoon, the soybean market may have factored in improved crop conditions in Argentina, but increasing South American harvest progress and decreasing Chinese demand for U.S. soybeans figure to be bearish market influences in coming weeks.
Estimates of Argentina’s production have likely bottomed out. Rains that fell Friday and Saturday across a large portion of Argentina’s central crop belt were enough to put crop concerns to rest for the remainder of the growing season in some areas.
The Buenos Aires Grain Exchange now pegs Argentina’s soybean crop at 42.5 million metric tons, up from a worst-case scenario forecast of 34.8-38.3 million bushels made in late January. The Exchange’s new estimate is 1.3 million tons below USDA’s most recent estimate, but 500,000 tons above the estimate from the U.S. agricultural attaché in Buenos Aires.
The stabilization of the crop in Argentina and southern Brazil suggests overall South American production estimate is not likely to fall much below USDA’s Feb. 12 estimate.
The focus is now shifting to the Brazilian harvest and prospects for Chinese buyers to shift their buying to the Brazilian market and possibly switch some previously contracted cargos to Brazilian origin.
Brazil’s soybean harvest reached 13% complete as of Feb. 20, up from 8% a week earlier, according to the private Brazilian consulting firm Safras & Mercados, which also reported pegged harvest progress 5 percentage points ahead of the five-year average.
Despite reports of significant rains early last week in Brazil’s top soy state of Mato Grosso, the Mato Grosso harvest advanced to 25% done from 16% a week earlier and was 8 percentage points ahead of average.
Mato Grosso and the No. 2 soy state of Parana are expected to see only scattered rains this week, which should lead to a further acceleration of harvest activity.
There has been no clear-cut evidence of fading Chinese demand yet, as last Friday’s USDA weekly export sales report showed more large purchases of U.S. soybeans by China during the week ended Feb. 12.
New sales of U.S. soybeans to China were very strong during the week ended Feb. 12 at 32.1 million bushels, while actual weekly shipments to China hit 32.5 million bushels.
But reports out of China indicate the demand tide is shifting. Reports circulated in late last week that Chinese processors would cancel some U.S. soybean shipments – including cargoes that were already en route – due to a sharp drop in domestic soymeal prices that has squeezed their crush margins.
And a weekly survey released on Friday the China National Grain and Oils Information Center (CNGOIC) indicated Chinese crushers are reducing purchases of U.S. soybeans for near-month delivery in anticipation the South American harvest will put more pressure on soybean prices.
"But with current domestic soy prices higher than imports, buyers are still interested in forward-month South American soy cargoes," the CNGOIC says.
Editor’s note: Richard Brock, Corn & Soybean Digest's marketing editor, is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report.