Production ups and downs twist external trade flows for maize and soybeans

Production ups and downs twist external trade flows for maize and soybeans

As a result of the cutback in soybean production, Argentina’s need to import raw materials to keep its factories afloat has intensified. Brazil floods the market with maize and soya, putting pressure on prices.

In its latest monthly report, GEA/BCR cut the 2022/23 soybean crop estimate to 21.5 Mil MT, the lowest production since the 1999/00 season. In the meantime, the production volume has almost tripled, although soybean production has been stagnant in Argentina for some time.

In this context, it is estimated that total soybean crushing (including extraction by pressing and solvents) will not exceed 27 Mil MT, the worst record in the last 20 years, which will possibly dethrone Argentina as the world’s leading supplier of soybean meal to the world.

In April, soybean exports from Brazil to Argentina exceeded 500,000 MT, while another million MT were shipped from Paraguay. Regardless of the fact that these figures may not coincide with Argentinean imports in the same calendar month due to a question of temporality, it shows the momentum shown by the activity, which in cumulative terms recorded the highest international movement of grains for this category in history.

Meanwhile, international operations do not stop activity in the domestic market, despite the complex year that the agro-industrial chain is going through. One month after the start of the third round of the Export Increase Programme (PIE), purchase operations by industrialists and exporters in the domestic market now amount to 4.1 Mil MT of soybeans, of which 2.8 Mil MT correspond to new purchase and sale operations and 1.3 Mil MT to price fixings on previously negotiated contracts.

The plants’ need to obtain the raw material drove domestic prices up during the week, even in contrast to what is happening on the Chicago reference market. In fact, the reference price for the Rosario market reached on Wednesday a value of 110,000 AR$/MT, 10% higher than the previous week. In Chicago, meanwhile, soybean futures had a weekly fall of 1%, closing on 11 May at a price of 516 USD/MT. The main downward drivers for the oilseed were, on the one hand, the good planting progress in the United States, where the planting of the bean totals 35% of the target area, 14%. above last year. On the other hand, market participants were expecting Thursday’s USDA World Supply and Demand report the following day to show an increase in 2022/23 soybean ending stocks, which would be added to the 2023/24 supply. During Thursday’s trading session, prices hit six and a half month lows.

However, if we look beyond the last week, the nearest soybean future has lost approximately 50 USD/MT in the foreign market since the beginning of April, while corn has lost 40 USD/MT in the last month. Clearly there is a downward trend in the market for both products, the first market crashes began to be observed in the oilseed and in the last few weeks the drops were felt in the cereal, as we approach the harvest period of second corn in Brazil.

In the case of soybeans, and beyond bilateral trade with Argentina, in March Brazil reached an export record, and although in April it was not able to sustain this record, it is a remarkable export volume. On the one hand, producers are reluctant to sell their soybeans, as premiums against Chicago reached very negative levels up to approximately -150 c/b in mid-April. Although premiums started to improve to -105 c/b, this does not convince producers and they are alternating sales with maize. On the other hand, China imported 7.29 Mil MT in April, a fall of 9.8% year-on-year, due to the implementation of a series of protocols that hindered trade fluidity. In the first four months of the year, its external purchases of soybeans reached 30.29 Mil MT, 6.8% above the same period last year.

In the case of maize, the news of recent weeks was the cancellation by China of purchases of US grain, after last week in an unusual move a South African maize ship landed at its port. In this context, last week the net export sales of corn in the United States marked a negative result of -320,000 tons of grain 2022/23, which is very unusual for this time of the year since it is the period of strong exports of corn with US origin. This plummeted the corn market and failed to recover strongly in the last few days. At the same time, last Tuesday the USDA again reported cancellations of purchases from China for 272,000 MT of US corn.

The key point to note is that Brazil has exported very large volumes of corn to China since the end of last year and this has allowed the Asian country to stock up on grain from South America. In April, Brazilian maize exports stood at 536,000 MT, down from the same period last year. However, this was coming on the heels of 6 months of high-volume maize exports, as China is stepping up and hastily shifting its focus to buying second grade maize from Brazil instead of US grain.

On Thursday, CONAB published its production estimates and for 2022/23 maize it projects 125.54 Mil MT, 660,000 MT more than last month and 12.4 Mil MT above the 2021/22 cycle. In other words, a large production is expected in Brazil, which will compensate for much of what Argentina has lost. The increase in the production projection was based on more second-crop maize, which would reach a total of 96.14 Mil MT, 76% of the total maize produced in Brazil. As can be seen in the graph below, Brazil seasonally presses with a large maize supply from July onwards, but this year it will do so with a large production, while Argentina will also concentrate its grain harvest around this time of the year, two factors that are likely to have an impact on international prices.


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