CFR China soybean basis hits record low on weaker local demand, bumper Brazil harvest

Source:  S&P Global Platts
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The CFR China soybean basis hit a historical low after reaching close to the 0 cent/bushel mark on April 10 amid weaker domestic demand and falling negative FOB premiums in Brazil where a bumper soybean crop is expected and selling progression from farmers is seen lagging.

Platts, part of S&P Global Commodity Insights, assessed the soybean CFR China M1 basis at 5 cents/bushel over May(K) contract on Chicago Board of Trade (CBOT) April 10, the lowest for a front-month Brazil shipment. It assessed the soybean CFR China M1 flat price at $551.98/mt April 10, down 3.9% week on week.

The CFR China M1 basis, corresponding to the CFR China soybean basis for May shipment, has fallen 90% week on week and 95 % month on month, according to S&P Global data.

The open demand for May and June shipments from Brazil had been revised down throughout the past month. For the May shipment, it was changed from 10 million mt to 9 million mt and from 9 million mt to 8 million mt for June, reflecting a slow demand coverage. For May shipment, only 82% of the total demand has been covered as of April 10, less than 35% covered for June shipment as crushers hesitated to bid amid falling prices.

From April 6 to April 7, Brazil May shipment was traded from 29 cents/bu to 5 cents/bu over May(K) CBOT, basis CFR North China. The buyer was one of China’s state-owned crushers. Commercial crushers were seen reluctant to bid amid a drastic drop in the basis and frozen market after the lowest basis was traded at 5 cents/bu over May(K) CBOT for Brazil May shipment, Chinese sources said.

The downward pressure on the basis was mainly contributed by harvesting in Brazil which reached 81% as of April 6, up from 75% the previous week, market sources said.

Harvesting was also seen approaching the last five-year average of 83%, according to S&P Global. However, Brazilian soybean farmer sales only reached 45%-50% on average, estimated by multiple institutions.

With the current large gap between farmer sales and harvest progression in Brazil, there is still a downside to CFR China soybean basis for nearby shipments. As a result, multiple Chinese crushers and traders expect the basis to break below zero and move to negative territory in the week beginning April 10.

For June/July onward shipments, the CFR premiums were more resistant to losses. “The selling pressure was mainly reflected by the spot and nearby shipments, and if China continues to buy less for nearby shipments, the CFR China soybean basis for deferred shipments will likely follow suit,” a Chinese trader said.

Meanwhile, a lower soybean premium or flat price will not necessarily translate into a sudden uptick in demand, market participants said. “The current gross crush margin is positive at Yuan 30-40/mt for May shipment; however, crushers may still make losses if factoring in other variable costs of crushing, and therefore, we need to see a better improvement of the crush margin in this week in order to purchase more,” a Chinese crusher said.

Platts assessed China soybean gross crush margin at $5.48/mt April 10, up $2.73/mt from April 6.

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