How many tonnes of soybeans and corn will China buy during the 2020-21 marketing years, which started 1 September? Some estimates put its soybean imports as high as 98m tonnes, beating the record set in 2017 of 95.5m tonnes. Of that 98m tonnes, 40% to 50% is likely to have been grown in American fields. According to figures from Chinese customs’ authorities, China imported 64.74m tonnes of soybeans between January and the end of August, 8.43m tonnes (or some 15%) higher year-on-year.
Admittedly, imports were almost 5% lower in August than July - but they were still 11% higher than the same month last year.
China’s apparently insatiable appetite for soybeans - fuelled by its need to replenish its pig herd - has helped the soybean futures’ price gain more than $1 per bushel over the past four weeks - the price closed at $9.68 per bushel last week, a new two-year high, and was trading today at $9.70 per bushel, a gain of almost 15% since the start of the year. Speculative investor net long contracts last week rose to 157,000 contracts, their highest level since May 2018.
The big beneficiary so far this year has been Brazil. Five years ago Brazil, the world’s biggest producer of soybeans, had annual output around 97m tonnes of soybeans, but today crops of 120m tonnes or more are the norm. The area planted to soybeans in Brazil is likely to expand in 2020-21 by more than 4%, above the annual average of 2.8% for the past five seasons. The USDA estimated in July a total Brazilian crop for 2020-21 of 130m tonnes.
Brazilian soybeans have been attractive to China partly for currency reasons. Brazil’s currency lost around 32% against the US dollar in the first half of this year, meaning that in the words of the USDA its "agricultural commodities are in effect on fire sale for the rest of the world."
No wonder then that Brazil’s managed to ship out 47m tonnes of soybeans from February through May this year, 40% higher than the five year average for the same period.
US soon to take the lead
The strong sales to China from Brazil this year are now slowing as supplies from this season’s crop become exhausted. From October the US soybean harvest will be in full swing - with expectations of a crop 25% higher year-on-year on a 10% expansion of the planted area of some 4.3bn bushels. American exports of soybeans (and corn) will soon be taking off.
US farmers could be prime beneficiaries of a looming corn shortage in China, which local traders put at up to 30m tonnes. With 40% of the US crop typically going to produce fuel ethanol, a demand boost from China would help corn futures, which are down so far by around 11% since the start of the year.
Even though China’s 2020-21 corn crop could be around 266.5m tonnes, that would be insufficient to meet demand, which is around 282m tonnes. Corn prices in China hit a five-year high of $297 per tonne towards the end of August. China has already committed to import more than 9m tonnes of US corn during the new marketing year.
Both soybean and corn futures look set for further gains in the coming weeks, especially as there are widely shared expectations that the latest Wasde report from the USDA on Friday this week will trim crop expectations for both.