May 20, 2004

US Gulf Soybean Basis Rising Despite China's Absence From Market

Basis bids for deliveries of cash soybeans from the U.S. interior to the Louisiana Gulf are rising sharply, ignoring an evaporation of Chinese export demand that had once been the primary driving force behind the market.

Spot CIF basis bids for soybeans were quoted at premiums of 55 cents a bushel to Jly futures on the Chicago Board of Trade Wednesday morning, representing a rise of 5 cents in the past week and 16 cents since May 4.

"Most of that (basis gain) is because southern processors have jumped back into the cash market and are finding it hard to find beans," said one CIF broker. "Most of the beans that get barged down to the Gulf these days go to processors, not to the ports."

The U.S. Department of Agriculture has not reported any shipments of U.S. soybeans to mainland China in over a month, defusing any near-term impact of a so-called "crisis meeting" held Sunday by China's 16 largest soy processors, which revealed that many cannot afford to pay for previously contracted purchases of foreign beans due to dwindling crush margins.

"We don't have any outstanding (soybean) sales to China on the books and the cargoes they've been canceling lately are all South American origin," said the CIF broker. "So all the stuff gong on in that market now, is really a big non-event at the Gulf."

U.S. soybean prices doubled in less than a year's time, which was compounded by an explosion in ocean freight rates to all-time record highs last winter.

Both markets have recently begun to decline sharply though, with some freight indexes off $5 to $10 per metric ton during the past month.

That softening in transportation costs also has forestalled soybean shipments to China from the Pacific Northwest.

"That PNW (soybean) market is very illiquid, and became a deal last winter just because freight was almost a dollar a bushel cheaper from Portland (Oregon) than it was from the Gulf," said an upper Midwest grain merchandiser. "And the Chinese needed beans fast because of changes in their government's import policy for GMOs (genetically modified soybeans)."

The American Soybean Association reports that spread between Gulf/Pacific Northwest freight rates to Pacific Rim destinations has fallen from a record high of over $31 per ton in mid-April, to $26.40 as of early May.