Spot soybean CFR China basis finally finds bottom
Ample supply from Brazil contributes to lower spot prices
The soybean CFR China basis premium appears finally to have found a bottom, at least for near-term cargoes, after falling to historical lows this month.
Record lows were reached on ample supplies out of Brazil and lackluster demand from the world’s biggest soybean importer, while more stable FOB levels and a pick-up in freight have provided a floor to the market.
Details of two May cargo trades concluded overnight Monday to Tuesday emerged on Wednesday, March 29, at a 40 cents per bushel premium to CME May soybean futures, with further offers seen on the same day in the 52-58 cents per bushel range.
Earlier this week, May trade had been reported at just 37 cents per bushel over CME May futures, while April was heard to have traded as low as 32 cents per bushel - levels which market participants said appeared very low as they were some cents under replacement costs based on FOB cargo and paper market levels at the same time.
“The levels were already too low, especially now with higher freight rates,” one Brazil market source said, noting a pick-up in freight in the last couple of days for shipments from Brazil to North China.
By comparison, basis premiums for May Brazilian soybean cargoes were almost $1 per bushel higher one month ago and $3 per bushel higher at the same time last year when crop damage caused tightness in the Brazilian soybean market.
This year, basis premiums have come under heavy pressure from a bumper crop expected in Brazil of 150-154 million tonnes and flat demand for soybeans from China, where crush margins and demand for soybean meal have been poor.
In addition, heavy rains earlier this year caused disruptions to port operations in Brazil, leading to congestion and long waiting times for vessels, which in turn has slowed Brazil’s soybean export program and created a shortage of storage space, adding to the pressure building on prices.
Brazilian grain supply
On Tuesday, Brazil’s grain exporters’ association Anec reduced its March soybean export estimates to 15.19 million tonnes from the previous 15.38 million tonnes projection.
While this figure is 3 million tonnes higher than last year’s 12.1 million tonnes for all March shipments and an all-time high for the third month of the year, it appears it is still not enough if Brazil is to achieve its expected exports of 93 million in 2023.
Sources said the current Brazilian export program was just too slow for the size of its crop.
“If the daily average of shipments remains at 606,000 tonnes, shipments up to the end of March will end close to 22 million, against 24.4 million last year, which only confirms that Brazil is far behind,” said Eduardo Vanin of Brazilian brokerage Agrinvest.
This could mean basis premiums continue to face some pressure further along the curve, particularly if the perceived buying interest from China fails to emerge.
“I feel China is not very active for July-August shipments or is still slow to cover July-August shipments,” one source told Fastmarkets Agriculture.
“If the farmer selling pressure has been released in May-June, we may see some support,” the source said, adding, “otherwise, there is still room for the July-August premium to go down.”
China expects to import some 95.2 million tonnes of soybeans this marketing year, up from 91.6 million tonnes in 2021-22, of which a sizeable portion is likely to come from Brazil.