Cash premiums for soybeans from Brazil and the US on CFR China basis had a roller coaster session in the past two weeks due to the interplay of factors including strong Chinese state-backed purchases and mounting fears of weaker Brazilian soybean output last week as well as fresh rumors of cargo washout this week.
Soybean premiums lost its bullish momentum in the second half of the week as rumors of Chinese cargo dumping escalated.
After having surged 30-40 cents/bu higher last week, premiums for cargo shipments in the second quarter of 2022 dropped 15-20 cents/bu in the past three days as buyers lowered their bids sharply.
The selloff is likely triggered by rumors of Chinese buyers dumping previously contracted soybean cargoes, according to several market sources who spoke with Sitonia Consulting.
The selling interests are not only seen from China’s state companies, but also private entities.
According to two traders, at least two private Chinese crushers are looking to wash out their soybean cargoes which are believed to be Brazil origin.
State-owned agribusiness giant Cofco is said to be the largest player in the market looking to wash out their Brazilian soybean cargoes in a move to shift their buying to the US market as a goodwill gesture to smoothen trade talks.
Washout is a term frequently used in commodity trading referring to buyers cancelling or reselling their previously contracted cargoes.
Another key reason behind the current wave of washouts is negative soybean crush margins in China.
Many crushers in China are better off selling cargoes at current price than unloading the cargoes and crushing them. CFR China soybean premiums for Q2 2022 shipments from Brazil were nearly $1/bu cheaper than the current offer back in November last year, based on data from Sitonia Consulting.
If some crushers had secured their supply back then, they could make a decent profit by reselling cargoes now.
Meanwhile, Chinese corn importers were also rumored to have resold up to two million tons of US corn cargoes recently as China is said to start revamping its duty-free zone policy.
However, the market continues to expect more purchases of US soybeans and corn from China’s state-owned companies as talks on the conclusion of Phase One trade agreement drag on.