Brazil's soybean premiums have spiked to two-year highs as US-China trade tension persists, local sellers have been out of the market and overseas and domestic demand remains firm amid a lack of fresh supply from the global top exporter of the oilseed.
The basis is currently near the record levels observed back in 2018, when the US-China trade war was at its peak and Beijing virtually moved all its demand towards the South American country.
In the Paranagua paper market, where trading firms negotiate export volumes, offers from September to November started this week at a $1.70-$1.90/bu premium to the Chicago Board of Trade (CBOT) futures, according to brokers and traders consulted by Argus. For delivery next month, premiums are 41.5pc higher compared to early July.
Such levels are the highest since the second half of 2018, when the US-China trade war pushed Brazilian premiums above $2/bu. The spat has not been fully resolved and recent tensions between Washington and Beijing, including the closure of consulates, contribute to the sentiment that Chinese buyers will keep in touch with Brazil in the coming months — a period usually dominated by the US thanks to its harvest.
Market participants say China has covered around 70pc of its soybean necessities for the rest of the year and needs to buy an additional 8mn t until December to meet local demand as the country has been seeking to restore its inventories.
But there are few volumes of untraded Brazilian soybean to be negotiated as farmers took advantage of attractive prices in the past months and committed most of their harvest. In Mato Grosso and Parana states, Brazil's top producers of soybeans, sales of the 2019-20 season are at 96pc and 91pc of local output, respectively, according to the latest official data.
As a result, exporters have been raising their offers to compete with local crushers for the rest of the available supply, since the next crop will reach the market only as of January. But increasing prices have led farmers to stay away from the market, waiting for even higher values.
In the towns of Rondonopolis and Sorriso, considered as benchmarks in Mato Grosso, soybean prices have been above R100/bag on average for seven weeks in a row, establishing record after record. In Parana's Paranagua port, offers are at a historical R120/bag price and expectations are for R130/bag soon.
Meanwhile, robust overseas shipments have also led to low inventories in Brazil — a situation that puts premiums up as well. Through July, Brazil exported 74.2mn t of soybeans, a record for the period, with around 70pc of this heading to China. More than 5mn t are expected to be shipped this month, reaching in advance the 80mn t previously forecast for the full-year.
Brazil is poised to end 2020 with the lowest soybean inventories because of the pace of exports. National oilseeds crushers association Abiove forecasts ending stocks of 669,000t, versus 1.7mn t last year. But the entity says supply for the industry is secured.
Brazilian demand for soybeans is firm too. Country's hydrocarbons regulator ANP is holding an auction this week to secure biodiesel for the 12pc blend into diesel for September and October months. But it has already said that a complimentary auction might be necessary as demand is likely to surpass supply.
Soyoil is the main raw material for biodiesel production.
