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04/09/2017 0:00 - Agricultural Commodities Market
EMILCE TERRÉ – SOFÍA CORINA
US 2017/18 soybean marketing year kicks off

The 2017/18 soybean-marketing year has officially begun in the United States, with production expected to beat initial estimates. In Argentina, soybean sales take a pause on the expectation of better prices and changes to export taxes.

According to a recent survey held by INTL-FCStone, traders expect in average US soybean yields around 3.35 tons per hectare, resulting in 120.2 million tons of productions. This number surpasses USDA’s latest estimate of 119.2 million tons.

As August went by, these expectations resulted on a significant drop in soybean prices. Reference prices set by Rosario Board of Trade’s Cereal Arbitration Chamber fell 2% to ARS 4,305 per ton, although a weaker peso held prices stable in dollar terms, closing the month around USD 250 per ton.

These prices hardly seduce sellers, resulting in farmers keeping hold of their production for as long as possible. It is expected among producers that the progressive reduction of export taxes on soybeans, which is scheduled to start on January 2018, will help support local prices, whereas the recent strengthening of the peso has resulted in another incentive for the wait and see strategy.

According to official data from the Ministry of Agroindustry, total soybean purchases remain behind schedule, with 57% of the expected production having been bought vs. a five-year average of 64%. We must also highlight the fact that as of August 23, 48% of total purchases have yet to receive price fixings, 9 percentage points above the five year average.

So far, this abnormal yet expected behavior has not translated to the 2017/18 marketing year. Exporters and processing plants have already purchased 1.7 million tons, about 10% more than they had in average bought over the past five years. However, only 30% of these purchases have been made at a fixed-price.

Soybean crush and export margins have weakened over the past few weeks, as shown in the following chart. With such weak profits, it is hard to think about a sudden reversal in prices unless conditions change.

Low trading activity has resulted in expected soybean consumption to fall from initial estimates, with ending stocks expected around 15 million tons.

Prospective soybean plantings for the 2017/18 marketing year are expected at 18.7 million hectares, which would represent a drop of 300,000 hectares from the previous year. If we assume yields to be trend (3.11 tons per hectare), total production will barely surpass 55 million tons.

This drop would represent a 4% fall in production, but ending stocks would more than compensate such decrease, giving way to a rise in total supply, which would exceed 72 million tons, setting a new record according to our estimates. Even if a rise in trading activity is expected in light of export tax cuts, demand must pick up to keep pace with ever increasing supply.

As of late, the Brazilian late corn crop, better known as safrinha, which represents 69% of its production, has led the global corn market. Throughout August, Brazil exported 5.4 million tons of corn, 1 million more than its record for that month set in 2015. The following chart, based on Williams Lineup data, summarizes Brazil’s monthly corn exports since January 2015, including expected exports for next month.

The jump in corn production during the 2016/17 marketing year took place thanks to favorable weather conditions for both crop development and harvest, as well as an increase in plantings due to relatively high prices. According to CONAB, a 9.7% increase in planted area and yields around 5.56 tons per hectare resulted in total production of about 97.2 million tons.

 

On the local grain market, corn has kept some interest from sellers in the ARS 2,300 to ARS 2,350 per ton price range. On the other hand, USD 142 per ton bids for new crop corn remain unattractive. Export purchases have reached nearly 19 million tons; about 3 million tons more than was acquired by the same time last year. However, this rise is mostly related to an increase in production given that the ratio of purchases to estimated production remains relatively unchanged

 

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Institutional Video of the Bolsa de Comercio of Rosario (Rosario Board of Trade)

 Rosario Board of Trade

The Rosario Board of Trade is a centennial institution located in Rosario, in the most important agroindustrial zone of Argentina. Throughout its history it has created and boosted transparent, solid and reliable markets: the Grains Physical Market, the Futures Market, the Capital Market, and the Livestock Market.

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