The downtrend in the soybean complex accelerated this week into new contract lows. Extremely bearish sentiment has been difficult to shake, as Brazil’s harvest is ongoing and US spring planting is not close enough to give traders a reason to focus on the weather. Mato Grosso farmers have sold approximately 41% of their beans versus an average of 60% for this time of year. This suggests significant selling is still on the horizon.
China has resumed buying now that the Lunar New Year holiday is over, but their purchases have been mostly for Brazilian soybeans, with nothing significant from the US. Weekly export sales were the fourth lowest in more than 30 years. In addition, 3-4 more Brazilian bean cargoes have reportedly been bought by US chicken producer Purdue for delivery to the US East Coast. Although Brazil soy premiums have risen sharply this week, FOB US Gulf prices are still $42 per tonne higher.
South American crop revisions have continued this week, but the changes have not been large enough to alter expectations for a large year-over-year gain in the Brazilian and Argentine output. In 2022/23 the two countries produce 187 million tonnes of soybeans. USDA is forecasting a combined total of 206 million for 2023/24, an increase of 19 million from last year. If Brazil’s production is closer to CONAB’s number of 149.5 million, the year-over-year combined gain would be close to 13 million tonnes, which is still significant. This is part of the reason why futures prices have not reacted bullishly to recent crop downgrades.
Very warm temperatures across the Midwest in the second half of February with similar conditions expected into March raise the odds of an early start for spring plantings. This scenario typically results in farmers planting fewer than expected acres of soybeans and more of corn. US soybean crop area under drought this week was 24%, compared to 25% the previous week and 32% a year ago. Iowa remains the major concern in the Midwest, as drought conditions remain in place there, especially across the northeast quadrant of the state. Spring rains will be needed to prevent critical subsoil moisture shortages during planting.
With US exports expected to suffer as Brazil harvest supplies increase, US domestic use must stay strong. Daily soybean crush rates in February have been at record levels due to increased capacity, a lack of transportation problems, and mild weather. February will likely be a record shipment month for soybean meal. Processor maintenance downtime should be minimal in March but more significant in April. More new processing plants will be coming online this spring.
US cash soybean oil has been weak this month, as biofuel plants filled tanks ahead of time and now need to work through their supplies.
Bottom Line: Mostly favorable South American weather, plentiful harvest supplies of soybeans, and first notice day for the March contracts may keep pressure on the market for most of next week. It is a couple of weeks too early to worry about US weather. A bounce may be more likely after first notice day on Thursday.
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Originally Published February 23, 2024
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