- The ongoing freewill in US export demand was foretold five years ago, shortly after the beginning to the trade war between the US and China.
- Since then the US has gone to nearly equal competitors with Brazil on the global stage to shipping roughly half Brazil's projected total.
- The US situation could be exacerbated by the possibility of increased soybean planted area in 2024.
I don’t usually spend much time talking about monthly USDA World Agricultural Supply and Demand Estimates (WASDE), and for good reason, I finally went back and looked at some of the numbers released last Tuesday (September 12). Rather than my usual disinterest, this time I had a legitimate excuse as I was speaking at Barchart’s Grain Merchandising and Technology Conference in Nashville. It was a good meeting, well attended by folks and businesses from across the United States, with one of the major topics of discussion the US soybean industry.
As you might recall, I’ve been bearish soybeans from a technical point of view for a while now despite fundamental reads that were trying to stay bullish. But that started to change in late August as national average basis (ZSBAUS.CM) continued to weaken and futures spreads started covering a larger percent of full carry[i]. What does this mean? The commercial side of the market was willing to pay those holding cash bushels in storage more of the total cost (storage and interest) TO NOT SELL NOW. I emphasized this intentionally because it has long been a point of contention between me and economists[ii]. The larger the percent the commercial side is willing to pay, the less bullish/more bearish real market fundamentals are.
With that as a background, I return to the question at hand: Has the US become a secondary player in the global soybean market? Whenever this subject comes up, I’m reminded of the U.S. Soybean Export Council (USSEC) Buyers Conference in Cartagena, Colombia back in September 2018. The itinerary included a number of the industry’s top speakers, but there is one that stands out in my mind five years down the road. Take yourself back in time and you’ll recall the Twitter (yes, Twitter) driven trade war between the US and China was relatively new, the US heading into its first harvest since the opening salvos were fired in January of 2018[iii].
At the USSEC Conference, RJ O’Brien’s Bell Chen spoke during lunch one day. His key point, and what he showed mathematically, was Chinese buyers were doing all the calculations to come up with the solution for buying the least quantity of US soybeans as possible. I was sitting next to Delaney Howell, and I asked her if I had her Mr. Chen correctly. After all, it was during the hubbub of a normal conference lunch. She confirmed my thought, showing me the notes she had taken. It was at that moment the argument could be made soybeans had become less a weather derivative and more a political weapon.
A look at what has happened since then, according to USDA’s WASDE numbers, shows Mr. Chen was spot-on with his analysis. If we go back a bit further, to the end of the 2015-2016 marketing year (August 2016), the US reportedly shipped nearly 53.0 mmt of soybeans while Brazil exported roughly 54.0 mmt. This put US exports at 99% of Brazil’s. By the end of the 2016-2017 marketing year (August 2017), the US reportedly shipped roughly 59.0 mmt while Brazil exported just over 63.0 mmt, dropping the US to 93% of Brazil’s shipments. As one would expect, this would be the closest the two countries would be in terms of exports for the foreseeable future.
In the September 2023 round of WASDE numbers we see the US is projected to export 48.7 mmt while Brazil’s exports are expected to climb to 97.0 mmt. In other words, over the past 8 years the US has gone from near equals with Brazil to shipping roughly 50% of the South American giant’s projected exports. At the same time, China’s imports have been trending up, outside of a couple African Swine Fever outbreaks, starting with 93.5 mmt during 2016-2017 marketing and growing to 102.0 mmt during 2022-2023. As I said last week, and many times over the last five years, trade wars aren’t as easy to win as we were told.
Looking ahead, things could get even more difficult for the US soybean market. US export demand is off to a slow start this marketing year, with the most recent weekly update showing the US had 596 mb of unshipped sales on the books, down 35% from the same week the previous marketing year. Though most of the year is still ahead of us, that’s a lot of ground to make up. More troubling, though, is the early read on 2024 US planted acres. Yes, I know, the 2023 harvest is just getting under way, but as you recall from previous discussion we can get a good read by watching the November soybean/December corn spread from the first of September through the end of the following February. It was this same 6 months last year that told us US corn acres were going to increase.
As of this writing, the 2024 spread is favoring soybeans. The first weekly close of September had the spread at 2.55, the second week at 2.52. The previous 10-year average weekly close is 2.4, theoretically telling us anything above the average favors soybean acres, below the average favoring corn. For the record, the first two weeks of September 2022 saw the 2023 edition of the spread close at 2.2 and 2.16 respectively, with the 6-month average weekly close coming in at 2.26.
Has the US become a secondary player in the global soybean market? Yes. That means more will have to be done to increase domestic demand, particularly during those years when production and supplies start to ramp up again.
[i] As I mentioned last week, Barchart’s Cost of Carry tables was a major topic of interest at the meeting in Nashville. I said then and I’ll say it again, I look at these tables more than any other to better understand real market fundamentals. Be sure to look for them on your cmdtyView system. I’d also be happy to answer what questions I can about them.
[ii] This always comes with a fun story about my conversation with the president of the company I used to work for, who just happened to be an economist.
[iii] Oddly enough, I was speaking at a different meeting in Iowa the day the Trade War was officially announced that January.
On the date of publication, Darin Newsom did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
