Dalian soybean meal spread surges as low US river draft sparks supply concerns

The inter-month spread of soybean meal futures on Dalian Commodity Exchange (DCE) soared on Thursday as reports of low water draft level in the US Mississippi River that could delay shipments of soybean and corn to China next month.

The spreads rallied across the curve on Thursday with the most liquid spread between November 2022 and January 2023 contracts up 67 yuan/ton on the day as investors fear soybean imports in November could be tighter than previously expected. 

The inverse touched a new high of 680 yuan/ton ($94/ton) as price of the former contract significantly outpaced the latter. 

Spreads further out of the curve also rallied, with the January 2023-May 2023 spread reaching an inverse of 370 yuan/ton, up from 330 yuan/ton yesterday, and up from 265 yuan/ton a month ago. 

Reports of water draft in the Mississippi River falling to “a dangerous low level” overnight circulated in the Chinese market on Thursday, sparking serious concerns of delays to cargo loading as the US crop season just begins to kick off.

“Exports from the Gulf in the first half of October could be pretty slow… River draft is the lowest in many decades,” said one oilseed trader at a major international crusher.

The view is echoed by several other trade contacts in the market.

“There are more than 3 million tons of shipments from US Gulf and PNW in October respectively. Cargo arrivals are going to fall,” another trader commented on the export situation in the Gulf.

This has come at a time when China’s buying focus is shifting from South America to the US. According to market estimates, Chinese importers have contracted nearly 11 million tons of soybeans for October shipment.

About 70% of which will be exported from the US. Volumes from the Gulf will be over 3 million tons for the month.

If shipments were to delay due to the low water draft in the Mississippi River through which barges carry soybeans and corn from the upstream to export hubs in the Gulf, China could face a much tighter supply next month than many had anticipated.

Meanwhile, importers could be forced to seek alternative supplies from the US PNW or South America, which could potentially drive export prices higher and subsequently raise import costs for China.