Devaluation Energizes Argentine Soybean Crush

Recent policy changes in Argentina have helped energize many sectors of the agricultural economy. In addition to a lowering in the exchange rate and ending restrictions on converting pesos to dollars, many export taxes and restrictions have also been eliminated. For wheat, corn, and sunflower seed, this has led to a surge in producer sales. For soybeans and products, which have never faced export restrictions, export taxes were only reduced 5 percentage points resulting in a more modest rise in producer sales. Soybean processors, in contrast, have reacted to the lower exchange rate by dramatically increasing crush volumes. Accordingly, soybean crush for the first quarter of 2016 is forecast to rise nearly 60 percent over the same quarter in 2015 and is likely to exceed the quantity processed in the Oct – Dec quarter of 2015.

Though processors in Argentina have generally been increasing meal and oil production from year to year in response to rising global demand, a strengthening peso – when accounting for inflation – had been significantly impacting competitiveness and profitability of the sector. With a 40 percent devaluation of the peso on December 19, however, coupled with continued depreciation, both competitiveness and profitability have improved dramatically. Processors anticipated the change and have been holding additional stocks that are now being rushed to market. This expansion is expected to continue for the next few months when additional supplies from the 2016 harvest will become available. Subsequently, crush is expected to resume growing in line with historical trends.

The rapid increase in Argentine processing activity in early 2016 will be felt by other soybean meal and oil exporters who will now face additional competition in global export markets. This higher crush could also add downward pressure on meal prices worldwide.

OVERVIEW

Global soybean production is down this month on lower estimates for Russia and Serbia while exports are raised on greater shipments from Brazil. Imports are boosted this month with growing demand in China and Bangladesh more than offsetting reduced shipments to the European Union, Mexico, and Pakistan. Global stocks are also lowered this month, reflecting rising crush in Argentina and strong demand for protein meal. The U.S. season-average farm price is lowered slightly.

SOYBEAN PRICES

U.S. export bids in February, FOB Gulf, averaged $345/ton, down $10 from last month.

As of the week ending February 25, U.S. 2015/16 soybean export commitments (outstanding sales plus accumulated exports) to China totaled 26.7 million tons compared with 29.7 million a year ago. Total commitments to the world are 42.4 million tons, compared with 47.6 million for the same period last year.

2015/16 TRADE CHANGES

  • Argentina soybean meal exports are up 1.1 million tons to 32.8 million and soybean oil exports are raised 165,000 tons to 5.9 million in response to a larger crush forecast.
  • Bangladesh soybean imports are up 100,000 tons to 1.1 million on a strong pace of trade to date.
  • Brazil soybean exports are boosted 1.0 million tons to 58.0 million on strong demand mainly from China.
  • Canada rapeseed exports are up 300,000 tons to 9.3 million reflecting strong demand from the European Union.
  • China
    • Soybean imports surge 1.5 million tons to 82.0 million reflecting a strong pace of trade in the first half of the marketing year and continued strong demand for protein meal.
    • Rapeseed imports are down 100,000 tons to 4.2 million on an expected slower pace of trade due to lower exportable supplies in Australia and growing soybean imports.
    • Palm oil imports are reduced 200,000 tons to 5.5 million as rising soybean crush is providing additional supplies of domestically produced vegetable oil.
  • European Union
    • Soybean meal imports are raised 400,000 tons to 20.7 million in response to larger supplies of competitively priced Argentine meal.
    • Soybean imports are lowered 500,000 tons to 13.2 million as increased meal imports reduce the need for soybeans for crush.
    • Rapeseed imports are up 400,000 tons to 2.8 million reflecting strong domestic demand.
  • India palm oil imports are lowered by 200,000 tons to 9.4 million as global palm oil supplies tighten.
  • South Korea soybean meal imports are increased by 100,000 tons to 1.9 million in response to larger global supplies at attractive prices.
  • Malaysia palm oil exports fall 400,000 tons to 17.7 million on a lower production forecast.
  • Mexico soybean meal imports are up 150,000 tons to 2.0 million, and soybean imports are down 200,000 tons to 3.9 million, in response to strong meal imports from the U.S. and consequent reduction in domestic crush of imported beans.
  • Pakistan
    • Soybean meal imports jumped 200,000 tons to 1.2 million, and soybean imports are reduced 250,000 tons to 1.3 million on increased global supply of soybean meal.
    • Soybean oil imports are raised 130,000 tons to 210,000 in response to reduced soybean crush and lower supplies of cottonseed oil.
  • Russia soybean imports grew by 200,000 tons to 2.3 million in response to robust demand.
  • Turkey imports of rapeseed are reduced 100,000 tons to 325,000 in response to a slower trade pace.