Brazil Takes Over: The US Loses Its Grip on the World's Biggest Soybean Market

Brazil: One big consumer, China, controls most of the global Soybean market. Brazil has been stealing a larger and larger portion of that trade from the US over time. South American shippers are now beginning to rule even during the slow period of the normal season.

Chinese buyers are snatching up Brazilian Soybean for delivery in October, when US exports are generally at their highest. Brazil is currently enjoying a record crop and selling its products at far lower costs than its competitors. They also reflect President Luiz Inacio Lula da Silva's strategy to strengthen connections with China as part of his plan to expand and the biggest economy in Latin America.

For at least another month or so, Brazilian transportation costs continue to offer competitive premiums. As Brazilian production increases, American farmers are losing their competitive advantage in the world's agricultural markets. China is now looking to strengthen connections with South America and lessen its historical reliance on the US because of geopolitical issues.

To strengthen ties with China, Lula wants to increase finance from the Asian country and lessen the use of the dollar in international trade. Earlier this year, a Brazilian group visited China and returned with more than 15 agreements and Chinese investment commitments totalling nearly $10 billion.

Chinese processors are currently making money by crushing Brazilian beans to generate cooking oil and animal feed, whereas margins are negative for US supply. Chinese customers are grabbing Brazilian cargoes earlier in the season as a result. In fact, purchases were made so early that five ships already had cargo pick-up dates set for September in Brazil.

According to the sources, there are enormous stocks at farms right now that will make their way to the ports over the next months. As a result, more vessels will soon be added to the roster. The purchases also occur as hot, dry weather puts pressure on US crops, which are generally harvested beginning in September. Before the Midwest started receiving rain again in July, the American soy crop was in the worst shape it has been in thirty years.

However, the current forecast is for another hot and dry spell. Chicago Soybean futures have increased by about 5% this quarter, to roughly $14.20 per bushel.

The likelihood of an improvement in agricultural conditions is low from a weather perspective. It's unlikely that the US Soybean crop’s supply will significantly increase this season.