Soybeans have continued to fall under heavy selling pressure as export sales have been lackluster since the latter half of January. While export sales increased this week, outstanding sales remain well below average for this time of the year and are the lowest since 2020. Looking at historical shipments between March and August when compared to outstanding sales, the USDA export estimate still seems to be too high, which is concerning for bulls, particularly as top soybean importer China continues to source most of its beans from South America.
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The continued lack of demand for U.S. origin soybeans in China continues to remain a concern. Cheap supplies continue to pour out of Brazilian ports, which has led USDA to increase old crop production of Brazilian soy several times over the past five months. Chinese imports through the first two months of the year are sharply lower despite reports that the nation is looking to build stockpiles of grains and oilseeds.
There is limited room for growth in demand in the U.S. balance sheet outside of exports and crush. Crushers have been operating at capacity for most of the crop year, with crush really beginning to accelerate into the winter months. Increased export demand for soymeal as competitor Argentina continues to deal with shortened supplies due to the 2022-23 drought has help incentivize crushers, alongside continued high use in soyoil for renewable diesel and other biofuels, which has kept bean oil stocks historically tight.
The question remains as to how much demand crushers can take on. Plants continue to come online for production of renewable diesel, though just last week Chevron idled two Midwest biodiesel production facilities. Memories of promised ethanol plant openings remain seared in the memories of producers, when financial hardship due to the Great Financial Crisis and poor ethanol margins led to abandoned plants in the late 2000’s. Worries of similar abandoned plans remain at the forefront of soybean traders’ minds, skeptical that renewable diesel and soy-based SAF will prove to draw the demand that the long-term USDA projections imply.
Increased soymeal export demand and a significant uptick in bean oil use for biodiesel have kept stocks for each tight over the past several months and continuously offered incentive for crushers to operate at capacity. Crush is operating at a pace above the needed mark to hit the current USDA estimate for 2023-24, though USDA seems hesitant to raise their estimate as Argentine crush is eventually likely to curb U.S. demand for meal, and thus weaken crush margins.
Even if crush continues to grow at a rate equal to the rate at which USDA projects, it will be difficult to offset weakening exports. South America is not likely to cut back on production anytime soon as Brazil has added acres for seventeen consecutive years. China has proved to favor cheaper prices, which have historically come from Brazil, over higher quality U.S. crop. While domestic demand has increased in the U.S., crushers have shown willingness to import Brazilian soy on the eastern seaboard rather than move grain from further inland the U.S., which creates a challenge for fundamentally bullish soy traders.
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