Brazil is poised to take over most of the world's soybean trade starting in April as it harvests a new crop and it will probably dominate the export market for longer than usual due to a drought in Argentina reducing that country's crop.
Until now, the United States has dominated the soybean market and been the major supplier to China, where processors have gone on a buying spree due to favourable crush margins.
The United States is the world's leading grower and exporter of soybeans, which are used to make soymeal for livestock and vegetable oil for human consumption. Brazil is the world's second largest exporter, followed by Argentina. "You have to assume that beyond March that the majority of China's imports are likely to come from South America, particularly Brazil," said Prudential Bach analyst Anne Frick in New York.
Brazilian soybeans are already cheaper than US supplies for March shipment but China can not get the volume it needs from Brazil alone until April, when the South American harvest is further along. As a result, US soybean sales will not fall sharply until April.
CHINESE BUYING TO REMAIN STRONG: China has been an unexpectedly large importer this year due to Beijing's decision to buy up to 6 million tonnes of soybeans for state reserves. So far the government has bought 610,000 tonnes. As a result, Chinese soybean prices have risen to the point where it is cheaper to import soybeans than buy from local farmers.
"I think the world and US exports are vulnerable because of the great dependency on China this year and are vulnerable to any change in China's buying policy," she said. At the moment, there is no sign that Chinese processors will slow down soybean imports. Crush margins are at some of the most profitable levels ever seen.
"Our outlook is for aggressive buying and for China to provide a lot of this demand," said Roberto Ramos, head soy trader at Feliza brokerage in Brazil's Maringa, Parana. "Not much has been traded until now, but there is a lot of pent-up demand."
The currency markets have also moved in Brazil's favour. The real has fallen 50 percent against the dollar since August, which makes Brazilian soybeans cheaper for international buyers. "The weakening of the real against the dollar will give local exports an added advantage, too," said Steve Cachia, chief grains analyst at Cerealpar traders in Brazil's Curitiba, Parana. "Argentina's peso has depreciated, too, but the dollar is strong at the moment, which you would think might tip the scales toward South American beans," he said.
DROUGHT HAMPERS ARGENTINA: Soybean exports face several hurdles in Argentina. The country is suffering its worst drought in decades and seeing signs of farmer unrest. Last year, producers snarled exports with roadblocks that prevented trucks from reaching ports.
The government has yet to issue an official estimate for this year's production but the Agriculture Secretariat said on Wednesday that farmers will plant about 7 percent fewer acres than previous forecast due to the drought. Even with a smaller crop, Argentine soybeans are expected to eventually become the cheapest in the world.
"Argentine soybeans will become cheaper than US soy in May, June or July, because there will be more offer from South America than from the United States thanks to the Brazilian and Argentine harvests," predicted Lorena D'Angelo, market analyst at the Rosario Chamber of Commerce. "China's appetite for soy will probably fall over the next weeks because their reserves are full," D'Angelo said.
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