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China soybean prices plunge amid weaker local demand, higher Brazil farmer sales


CFR China soybean basis M1 assessment down 37% on week

Lower demand coverage for nearby shipments

Lowest basis since 2018, basis risk hard to hedge

  • Author
  • Melody Li
  • Editor
  • James Leech
  • Commodity
  • Agriculture

Chinese soybean prices have plunged this week, with the basis to CBOT futures reaching the lowest levels since 2018, amid higher selling volume by Brazilian farmers and lower demand coverage for nearby shipments, market sources said.

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Platts, part of S&P Global Commodity Insights, assessed CFR China soybean M1 basis down 23 cents/bu at 76 cents/bu over May CBOT on March 17, representing a 23% drop on the day and a 37% drop week on week.

"The harvest of Brazil new crop has been 53% done with selling progression lagging behind at 38% approximately as of the beginning of this week," a Chinese crusher said. As a result, higher selling pressure has made soybean prices for nearby shipments drop continuously over the week, he added.

According to market sources, the weekly selling volume of soybean in Brazil would amount to 6-7 million mt, which could be the highest weekly selling volume since January.

Meanwhile, China demand for soybean weakens due to downgraded consumption and lack of recovery in the hog breeding industry. These have resulted in dropping soybean meal prices and negative crush margins, forcing Chinese crushers to slow down the demand coverage.

As of March 17, the lowest spot soybean meal was traded at Yuan 3,940/mt, the lowest in the past eight months, and down by 11.5% month on month, market sources said. Hence, the replacement crush margin was estimated by the industry at minus Yuan 230/mt on average.

"Given the limited time left for procurement of April shipment and lower bidding ideas among crushers amid lower soybean meal and oil prices, it is unlikely to see the total demand exceeding 8.5 million mt," a Chinese research analyst said. The initial estimation of open demand for May shipment was at 10 million mt.

For May shipment, the revised open demand was at 9 million mt, down 10% compared with initial estimates from industry sources of 10 million mt.

The drastic drop in soybean prices overnight did catch some buying interests, however, the crushers froze to purchase more when realizing that the CFR China soybean basis continued to drop after the trades, a Chinese trader and broker said.

"Some crushers who had covered May shipments during previous weeks were unhappy with the dropping basis, because they found themselves unable to hedge the basis risk amid volatile basis movements," an analyst from one of the largest crushers in China said.

For Brazil May shipment, Platts assessed the outright price at $577.61/mt as of March 17, down 3.4% week on week.

Platts assessed the China gross crush margin at minus $1.23/mt March.17, compared to the value at minus $8.12/mt March 16.