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Highlights

Brazil farmers reluctant to make sales amid low stocks

USDA confident on Phase 1 trade deal

New Delhi — China's state-owned soybean companies have been purchasing large volumes of US soybeans for the last quarter of 2020 as the Brazilian old crop beans stock declines, making the South American oilseed more expensive than the US crop, sources said.

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Chinese state-owned soybean buyers purchased numerous US Gulf soybean cargoes on the evening of June 15, sources said. With limited Brazilian supply for the remainder of the year, Chinese crushers have turned their attention on US soybeans for September to January shipments.

Brazilian soybean old crop is mostly sold out, which makes US soybeans more price competitive, a trader said. According to market participants, Brazil has already marketed over 88% of the estimated 120 million-123 million mt of old crop in the 2019-20 marketing year (February 2020 – January 2021), up 20 percentage points year on year.

According to S&P Global Platts data, SOYBEX FOB Santos for August loading was assessed at $371.50/mt June 16, while SOYBEX FOB New Orleans was assessed at $351.64/mt.

Brazil has exported 48 million mt of soybeans between January and May, up 37% on the year, with 73% of the soy shipment destined for China, the Brazilian trade department reported in the first week of June.

The US Department of Agriculture is confident that the world's biggest soybean importer will purchase more US beans in the second half of 2020.

China is on track to purchase large volumes of US soybeans in the last quarter of 2020 under the Phase 1 trade deal, a top USDA official said June 16.

Under the US-China trade deal, signed on January 15 after an 18-month long trade spat, Beijing has promised to purchase $200 billion worth of US products over two years, with agricultural imports valued at $80 billion, including raw soybeans.

Volatile real

With a volatile Brazilian real, farmers are expected to hold on to their soybean reserves and wait for the currency to depreciate further.

The real lost over 40% of its value between January and late May, before a slight recovery. The currency has started depreciating again since June 9.

Between June 9 and June 17, the real has lost 9% of its value, according to the forex department.

According to Brazilian economists, the real could slide further toward 6/$ in the coming weeks due to the impact of the pandemic on the country's economy.

Brazil's government revised its 2020 forecast to an economic contraction of 4.7% compared with a zero growth estimate in March. Brazil's economy ministry forecasts the economic crisis will worsen due to the pandemic, and will mean fiscal deterioration, the closing of companies and more unemployment through July.

China's purchase of US soybeans in the past few weeks has been seen as a commitment from Beijing toward the Phase 1 trade deal, despite the recent diplomatic spats, a trading source said. However, the unresolved issues between two of the world's largest economies could destabilize the deal.

Both countries are yet to agree on key issues such as proprietary information theft, technology transfer, Hong Kong, Taiwan and the South China Sea, an analyst said.

In the coming months, any small incident or comment from either side could jeopardize the Phase 1 trade deal and restart the retaliatory tariff feud.