China likely to buy more US Gulf soybeans in Q1 amid South American supply woes

World's biggest soybeans importer China is likely to buy more-than-usual volumes of the oilseed from the US Gulf in February and March as harvest delays in Brazil and a severe drought in Argentina affect supplies, market sources said, likely supporting the basis prices.

Purchasing the cheaper oilseed from South American suppliers has become increasingly strenuous in recent weeks, as harvest delay has plagued the Brazilian trade flow and drought has enticed the Argentinian farmers to hoard their stocks, China-based crushers said.

China's major state-owned agricultural companies, as a result, are busy seeking more expensive US Gulf shipments as alternative supply options dwindle, market sources said.

Sinograin, also known as China Grain Reserves Corp., bought five US Gulf cargoes during mid-February, including one for February shipment and the rest for March, China-based traders said. The soybeans were bought to augment national strategic reserves, they said.

According to the market sources, Sinograin has continued inquiring about the US Gulf soybeans for February and March shipments even as the Pacific Northwest origins were almost sold out for spot shipments.

Platts assessed SOYBEX FOB New Orleans for April shipments at $600.67/mt Feb. 22, up $8/mt month on month, S&P Global Commodity Insights data showed.

Brazillian supplies

Typically, in the first quarter of a calendar year, China begins to ramp up its soybean purchases from Brazil, with its oilseed purchase from South America peaking by mid-year. By the end of Q3, as the US soybeans harvest begins, China turns to American farmers to satiate its humongous appetite for the yellow oilseed.

However, 2023 is likely to be different, as Beijing is set to buck the trend and buy more of the US beans than it usually does amid the supply predicament down in South America.

Brazil, which is the world's largest soybeans producer and China's top supplier, is forecast to produce a record crop of over 152 million mt in the marketing year 2022-23 (January-December 2023), with 70% likely heading to the Chinese ports, according to average analysts' estimates. However, its shipment capacity has been severely constricted owing to delayed harvest since the start of 2023.

Brazil's soybean planting usually begins around late September. However, the 2022-23 crop year (September 2022-August 2023) began late into October for the country's key southern states amid severe dry conditions, analysts said.

As a result, soybean harvesting in the southern region is lagging by almost three weeks.

The latest survey by agricultural consultancy AgRural recently showed that 25% of the projected 43.3 million hectares of soybean area had been harvested by Feb. 16, down 8 percentage points on the year.

With slower-than-expected harvesting, Brazilian soybean exports have slumped considerably in 2023.

The country exported 0.84 million mt of soybeans in January, down 66% on the year, latest data from the foreign trade department SECEX showed. In addition, shipments to China, which typically sources 65% of its soybean demand from Brazil, were estimated to be 70% lower on the year in January, according to the SECEX data.

Meanwhile, February has seen no improvement in the trade flows either.

Brazil's soybean exports fell 22.6% from a year ago to 1.3 million mt during Feb. 1-13, with daily soybean shipment in February estimated at 162,601 mt, significantly below 330,069 mt in the same month last year, SECEX data showed.

According to analysts, Brazil's soybean supply situation is expected to improve from mid-March, with exports likely to peak by June.

Drought hampering Argentinian supplies

Argentina produces roughly 45 million mt of the yellow oilseed every year and ships out nearly 5 million mt of it, with 80% heading for China.

However, amid forecasts of severe drought, restricting the country's soybeans output in MY 2022-23 (April 2023-March 2024), farmers have been cautious in selling their stocks, analysts said.

In MY 2022-23, the world's third largest soybeans producer and exporter is forecast to harvest about 35 million-37 million mt, the lowest in the last 10 years and down almost 15 million mt from early season expectations, analysts said.

On Feb. 8, Bolsa de Comercio de Rosario projected the country's MY 2022-23 output at 34.5 million mt, which if realized, will be the smallest harvest in 14 years.

The Argentinian farmers were reluctant to sell their soybean inventory as they expected the country's stocks to slide further amid the crop failure in MY 2022-23, analysts added.

Not surprisingly, larger-than-usual volumes of soybeans imports in MY 2022-23 have been forecast from Argentina.

According to the US Department of Agriculture, the South American country is projected to import 6.25 million mt, up 63% on the year, with many analysts believing it is more of a conservative estimate.

The country's soybean imports are likely to be around 9 million mt if BCR's forecast of 34.5 million mt is realized, analysts said.

According to a Shanghai-based commodity consultancy, China is expected to accelerate its soybeans imports from April when Brazil's bin-busting harvest starts reaching the key ports of Paranagua and Santos with a smooth flow.

The Asian nation is expected to import 95 million-96 million mt of soybeans in the calendar year 2023, up 4.5%-6% on the year, the consultancy said.