Following good gains at the end of last week (ending 19 October 2018), the SAFEX soya bean market pulled back in yesterday’s (22 October 2018) trade session and settled at R4 602 per ton (spot price). This was underpinned by a combination of factors, which include the spillover from lower Chicago soya bean prices and a relatively stronger Rand against the United States (US) Dollar, amongst others.
The losses in the Chicago soya bean market were driven by reports of a cancellation of 180 000 tons of US soya bean sales to China. This could be linked to the lingering trade tension between the two countries, which has resulted in the introduction of retaliatory tariffs by China on US soya beans. Last week the US government indicated that the talks that were underway, in an effort to resolve the dispute, are on hold for now.
We place more emphasis on this because China is a dominant player in the global soya bean market. In fact, China’s 2018/2019 soya bean imports are estimated at 94 million tons, unchanged from the previous season. This equates to 61% of the global soya bean import estimate for the season.
Given the aforementioned trade dispute, Brazil is likely to be the key supplier of soya beans to China in the 2018/2019 season. This will not be the first time, as 66% of Chinese soya bean imports last year (2017) originated from Brazil with 29% from the US and the rest from other countries.
Worth noting is that Brazil’s dominance in the Chinese soya bean market didn’t only start in the 2017/2018 season, but has been the case since the 2011/2012 season. The current trade tension between the US and China has exacerbated the situation, lessening the US presence in the Chinese soya bean market.
Fortunately for Brazil, this is at a time where the country has had good soya bean harvests, thanks to favourable weather conditions. Earlier this month (October), estimates from the United States Department of Agriculture (USDA) showed that Brazil’s 2018/2019 soya bean production could amount to 121 million tons, 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% of the area having already been planted on 18 October 2018, according to data from AgRural. –Wandile Sihlobo
Wandile Sihlobo, head of economic and agribusiness intelligence at Agbiz, shares highlights in his update on agricultural commodity markets. Click here for the full report on agri markets for the major commodities.