Market Insight | Week 37

According to the latest USDA report, released on September 12th, the United States is forecasted to achieve a record soybean production of 124.90 million tonnes in the 2024/2025 marketing year, which began in September 2024. This production is expected to be followed by soybean exports totaling 50.35 million tonnes, reflecting an increase of 4.08 million tonnes compared to the 2023/2024 marketing year. However, this projected export volume remains below the levels recorded during both the 2022/2023 and 2021/2022 marketing years. It is important to note that these estimates could fluctuate, particularly due to the influence of China, the largest importer of U.S. soybeans. Indeed, the Chinese factor could play a critical role in the upcoming months on the U.S. soybean exports due to the heavy reliance on the Chinese market.

Upon closer examination, the lower soybean prices spurred a surge in Chinese imports from Brazil resulting in a significant stockpile. Despite a recent decline over the past two weeks, soybean inventories at Chinese crushing plants remain elevated at 7.58 million tonnes, reflecting a 35.6% increase compared to the same period last year. However, price may not be the sole contributing factor. The increased stock levels could reflect the uncertainty surrounding the upcoming U.S. presidential elections and the potential for stricter tariffs against China. Any retaliatory measures from China could severely impact the soybean market, as it remains particularly vulnerable to additional tariffs on grain trade – similar to what occurred in 2018 following President Trump’s tariffs on aluminum and steel imports from China. In the short term, this uncertainty may lead to increased Chinese demand for U.S. soybeans, with an emphasis on further stockpiling. Considering that the last quarter is traditionally the strongest period for U.S. exports, with export volumes to China typically rising in October and November, just before Inauguration Day, it is possible that Chinese soybean imports will remain elevated despite the current healthy stockpiles. China’s food security policy may drive increased demand amid the uncertainty surrounding potential new tariffs following the upcoming election, a trend that could support the utilization of both Kamsarmax and Ultramax vessels. The traditional period of heightened U.S. soybean exports, along with the potential for strong Chinese demand, may align with an increase in daily transits through the Panama Canal and a gradual uptick in bulk carrier traffic along this route, especially in the latter half of 2024. While this development could mitigate the impact of rising soybean exports on the freight market, its overall effect is expected to remain limited.

In the long term, the introduction of potential tariffs from China could diminish the competitiveness of U.S. soybeans. Since 2013, Brazil, with its vast land resources, has steadily increased its productivity, catching up with U.S. yield levels. Additionally, significant investments in transportation infrastructure have enabled Brazilian exporters to access the Atlantic Ocean more efficiently. Historically, U.S. soybean producers faced higher production costs but benefitted from lower transportation costs compared to their Brazilian counterparts in key provinces like Mato Grosso and Goias. If this balance shifts, especially with the imposition of potential tariffs, Brazilian producers stand to gain a considerable advantage.