Following good gains at the end of last week, the SAFEX soybean market pulled back in yesterday’s trade session and settled at R4 602 per tonne (spot price). This was underpinned by a combination of factors, which include the spillover from lower Chicago soybean prices and a relatively stronger rand against the US dollar, amongst others.
- The losses in the Chicago soybean market were driven by reports of a cancellation of 180 000 tonnes of US soybeans sale to China. This could be linked to the lingering trade tension between the two countries, which have resulted in the introduction of retaliatory tariffs by China on US soybean. Last week, the US government indicated that the talks there were underway, in an effort to resolve the dispute, had been put on hold for now.
- We place more emphasis on this because China is a dominant player in the global soybean market. In fact, China’s 2018/19 soybean imports are estimated at 94 million tonnes, unchanged from the previous season. This equates to 61 percent of global soybean import estimate for the season.
- Given the aforementioned trade dispute, Brazil is likely to the key supplier of soybeans to China in the 2018/19 season. This will not be the first time, as 66 percent of Chinese soybean imports, last year originated from Brazil with 29 percent from the US and the rest from other countries.
- Worth noting, however, is that Brazil’s dominance in the Chinese soybean market didn’t only start in the 2017/18 season, it has been the case as far back as 2011/12 season. But the current trade tension between the US and China has exacerbated the situation, lessening the US presence in the Chinese soybean market.
- Fortunately for Brazil, this all happens at a time where the country has been receiving good soybean harvests – all thanks to favourable weather conditions. Earlier this month, estimates from the USDA showed that Brazil’s 2018/19 soybean production could amount to 121 million tonnes, up by a percentage point from the previous season. The forecast El Niño that typically leads to drier weather conditions in Southern Africa and other regions has an opposite effect in Brazil and other South American countries, which is higher rainfall. This could boost yields in the new season. The planting activity is currently in full swing in the country, with 34 percent of the area already planted on 18 October 2018, according to data from AgRural.
