By Warren Kreyzig, Commodities Analyst at Bank Julius Baer
Although South America remains on track for a record soybean harvest this year and increasing global stockpiles, soybean prices have risen as of late on the fears of a very tight outlook for year-end supplies in the United States.
Lower-than-expected Chinese export cancellations are likely to result in the US Department of Agriculture (USDA) increasing its export estimates this week, which may support prices, although they are likely to increase their import estimates also. Chinese export demand has remained solid despite evidence of slowing domestic demand and structural overcapacity.
Traders report the Chinese have opted instead to cancel Brazilian soybean shipments, in many cases rerouting and selling them at a discount to the United States. Fundamentally, we see the global market as well supplied with high stockpiles and softening demand in China.
This should facilitate trade flows into the United States, keeping the domestic market amply supplied. We remain bearish on soybeans on a 3-month and 12-month horizon. It looks as though another dry week in the US wheat belt this week will support prices in the short term, although the outlook for early next week suggests farmers may receive much needed rain.
Current wheat prices appear to have the weather risk premium priced in and should it rain, prices are expected to ease.
Conclusion: We maintain our neutral wheat outlook with a cautious eye on crop conditions. The USDA is likely to increase its estimates for soybean exports as Chinese demand remains solid and expected cancellations muted. Nonetheless, given ample global supplies and reported imports into the United States we uphold our bearish outlook on soybeans.