Soybean – The panic has calmed down

Price

Brazilian soybean have been quoted in China at a $94 premium a tonne over July Chicago futures. In comparison, it reached in April a $160 premium, after the threat to set a tariff on US cargoes. Usually, the premium reaches about $50-60 a tonne at this period of the year.

The price for Brazilian soybean is expected to drop as the government has announced all-time record harvest of more than 119 million tonnes. Moreover, the current high price for Brazilian soybean has slowed down the Chinese demand. However, some traders declared that Chinese importers have booked 20 cargoes for a delivery in August last week.

Céleres, which is active in consultancy in Brazil, estimates that overseas sales of soybean will increase by 2 million tonnes in 2018, to reach an annual total exports of 72 million tonnes.

Price in USD/bushel

Pork’s demand is declining in China

According to Reuters, China will reduce its soybean imports for the first time in 15 years in 2018/19. The agriculture ministry has indeed noticed a dropping demand for hog which lead to a decreasing demand for animal feed. Hog prices in China registered one of the sharpest ever declines in the first quarter and are below average production cost. China’s April soybean imports fell to 6.9 million tonnes, a decline of 13.7% from a year ago.

“Most soybean plants in China are now overstocked with meal and oil,” said a trader in Beijing.

Forward curve – price per contrat (100 short tons (~91 metric tons))

The forward curve has changed compared to our last bulletin. The inversed shape from August to November has turned into a carry. It can be explained by the all-time record harvest of soybean in Brazil announced by the South American country government. It obviously increases the supply so the market has to carry the storage costs of soybean producers.

Crush spread (in cents per bushel)

The crush spread shows us how much money we can earn by crushing soybeans into soybean meal and soybean oil. The crush spread has these days reached its higher point since 2013. This represents a bullish factor for the price of oilseed. This changes affect also companies like Bunge, its stock has raised from $63.87 per share in November 2017 to over the $70 level. The same move has happened to ADM stock, from lows of $38.59 in November 2017 to around the $44 level.

Moreover, Bunge’s CEO and ADM’s CFO said that the severe drought in Argentina causes this increasing crushing margin and that their companies were profiting from it since they own many crushing plants.

News

• ADM recently bought a grain elevator in Manilla in Iowa.  This purchase increase the storage capacity of the company by 2.3 million bushels, whose represents 1.5 m of bunker storage and 775.000 of upright storage. The infrastructure can also receive 32.000 bushels of soybean per hour.
• Some delays are occurring in China on discharging vessels and soybean are stored on a longer term basis until tests for GM material are concluded. China government keeps reporting finding seed-treated soybeans in shipments, but have not stopped trade due to this presence thus far. It could affect soybean imports if the government decided to react and set up some severe regulations on GM products.
• The Taiwanese Food and Drug Administration is currently drafting implementation regulations on a law set in 2014 on GMO food labelling. It impacts all soy products except soybean oil. This decision could slow down the demand for bulk soybeans coming from United States.
• In Japan, the U.S. soybean industry has seen trade perturbations due to detections of chemical residues that exceed the country’s tolerances. As U.S. soybean farmers use new herbicide mixes to eliminate weeds, there is a need to monitor those chemicals and the maximum residue level policies in export markets.

Blockchain

HSBC has made their first trade finance transaction integrating blockchain technology. This trade was conducted for a cargo of soybeans shipped from Argentina to Malaysia, involving Cargill Geneva, ING, and HSBC themselves, using a Corda blockchain developed by the R3 consortium.

HSBC’s global head of innovation, Vivek Ramachandran, said that “the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous.” He added that it is an inflection point for how trade is conducted.

The trade, instead of usually taking five to ten days for the exchange of all the documents, has here been made in only 24 hours. Moreover, HSBC said that they consider that blockchain could help reducing costs by 31%.

Video – HSBC’s blockchain engagement

https://twitter.com/HSBC/status/995778209416392704?s=20

Sources

http://www.businesstimes.com.sg/energy-commodities/faltering-chinese-soybean-demand-dents-brazils-chances-of-trade-war-bonanza

http://marketqview.com/forwardcurvechart.php?ID=74&TYPE=Price

http://agriculturewire.com/soy-checkoff-keeps-tabs-on-transportation-issues/

http://www.businessinsider.fr/us/hsbc-ing-blockchain-trade-finance-cargill-soybeans-2018-5

https://www.r3.com/

http://www.macrotrends.net/2531/soybean-prices-historical-chart-data

https://seekingalpha.com/article/4170072-soybean-crush-spread-telling-us-demand-strong