USA-China trade war pushes up quotes in BR

Cepea, August 20 2019 – The USA-China trade war pushed up soybean prices in Brazil in the first fortnight of August. The US dollar appreciation against the Chinese currency makes purchases of American goods more expensive to the Asian country, leading international purchasers of agricultural commodities to the Brazilian market. The increase in the Chinese demand for the Brazilian soybean was also favored by the devaluation of Real against the US dollar in the first half of the month


Besides the devaluation of the Chinese currency, the trade war between the United States and China has worsen, and the Chinese government has even announced a possible interruption in the purchases of American agricultural commodities. This occurred after the US President imposed new tariffs on Chinese goods.


As for the trading pace in Brazil, despite the high price levels in the domestic market, some sellers were retracted in the first fortnight of August, expecting higher demand in the coming weeks. Besides, some sellers prefer to send the product to ports (and export) rather than trade it in the Brazilian market. Between July 31 and August 15, the ESALQ/BM&FBovespa soybean Index at Paranaguá rose 10.5%, to 85.40 BRL (21.39 USD) per 60-kilo bag on August 15. In the same comparison, the CEPEA/ESALQ Index for Paraná increased 8.3%, to 78.39 BRL (19.63 USD) per 60-kilo bag on August 15.


SOY OIL – The addition of biodiesel to diesel oil should increase from 10% (B10) to 11% (B11) starting September 1 2019, according to the measure approved by the ANP (National Agency of Petroleum, Natural Gas and Biofuels) on August 6. This scenario should increase liquidity in the Brazilian soy oil market, since this product accounts for 70% of the raw material used in biodiesel production.


Since the first week of August, soy oil prices have been on the rise in the Brazilian market. On August 15, soy oil prices averaged 3,023.09 BRL per ton in São Paulo city (12% ICMS), the highest levels since January 6 2017, in nominal terms, and 11.2% up compared to that on July 31.


The biodiesel auction conducted by the ANP in the second week of August had large volumes purchased. According to agents consulted by Cepea, the amounts traded in the auction aim to meet the demand between September and October 2019.


In light of the firm demand for soy oil, agents from processing plants were concerned about soybean meal sales. However, the high demand for soybean meal from the poultry and swine sectors continues to underpin quotes for this by-product in Brazil. In this context, the USDA indicates that soy oil and meal consumption in Brazil should be records.


Now, the major challenge for Brazilian processing plants is related to the purchase of new soybean batches, since most plants are stocked up for the mid and long terms. It is worth to mention that some processing plants have already interrupted activities for maintenance, as usual for this time of the year.


SUPPLY AND DEMAND IN BRAZIL – With only some areas in northern and northeastern Brazil to be harvested, Conab (National Company for Food Supply) revised down soybean production estimates in the 2018/19 season to 115.1 million tons. This volume is 3.53% smaller than that in the 2017/18 crop and should be the second largest output for the country in all times.


Brazilian soybean exports between January and December 2019 were revised up to 70 million tons, 2.9% higher than that estimated in June, but 15.9% down compared to that exported last season. Ending stocks (by December/19) were reduced to 1.4 million tons (-58% compared to that forecast in June). Conab estimates soybean consumption in the 2018/19 crop to reach 45.2 million tons.




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