Since July, the first phase price of soybeans has shown a trend of first falling and then rising, and the spot price in Northeast China has remained basically stable. Overall, the pressure of policy supply is expected to increase in the later stage, putting pressure on spot prices. However, this process may be relatively slow. In the case of a strong short-term spot price, the short-term spot price will receive support, while the backward shift of policy supply pressure, combined with the expectation of new high-yield production, will result in significant downward pressure on the long-term spot price. The strength of soybean futures may continue to be strong in the near term and weak in the far term.
- Auction transaction differentiation, supply lower than expected
As of August 2, 2024, China Grain Reserves Corporation has sold a total of 437,800 tons of domestically produced soybeans, with a transaction rate of over 55%; Among them, the two-way purchase and sale auction sold about 231,600 tons of bean sources, with a transaction rate of over 65%, significantly higher than the one-way sales auction transaction rate (according to statistics from China Grain and Oil Business Network). According to statistics from Braun Consulting, China Grain Reserves Corporation conducted a total of 16 auctions in July, including 9 one-way auctions and 7 two-way auctions, with a significant increase in frequency compared to the previous month. The bottom price for the one-way auction of China National Reserves Corporation in July was 4550 RMB/ton, and the purchase and sale bottom prices for the delivery locations of the two-way auction targets in the production areas were both 4,600 RMB/ton, which remained the same as the previous month. In the first week of August, the number of auction venues continued to increase to 5, with an additional two-way auction per week. The amount of beans released by China National Reserves Corporation also increased accordingly;
The domestic soybean trading center of the 93 Group began auctioning domestic soybeans on July 9th, and the bottom price varies greatly depending on different indicators such as protein. But after only three online transactions, the 93 Group turned to offline negotiation methods. The total transaction volume of 93 Group soybeans was 8,280 tons, with an average transaction price of 4,610-4,724 RMB/ton.
The local regulatory reserve in Heilongjiang Province has been in operation since July 19th and has undergone multiple rounds, but most of them have zero transactions. Although the starting price for some rounds has been lowered from 4,530 RMB/ton to 4,500 RMB/ton, 4,490 RMB/ton, 4,480 RMB/ton, and 4,460 RMB/ton, it is still difficult to attract demand participation. In July, the provincial reserve has accumulated 1,721 tons of transactions, with an average transaction price of 4,490-4,530 RMB/ton.
From the auction frequency and quantity of reserves at all levels in July and August, there is a trend of increasing month on month. The relevant departments have a very clear mentality of actively selling reserve soybeans at all levels and intend to fully utilize the current high price period to digest inventory. Due to the large-scale listing of domestically produced soybeans in Northeast China in October, the purchase of soybeans from the National Reserve will be launched at the end of October, leaving a short time window for reserves at all levels and auction sales on September 3rd. Therefore, the current policy supply concentrated on National Reserve soybeans is unlikely to continue. In the later stage, policy supply will continue to improve, auction sessions will increase, and the auction reserve price will further approach the current price, all of which will turn expectations into reality.
From this perspective, the supply pressure is only temporarily delayed, and the limited supply currently provides some support for spot and futures prices in the near future, while being clearly bearish for far future prices. This is the logic behind the recent strong and weak soybean futures prices.
From the high transaction rate of the national reserve soybean two-way auction, it can be seen that the participating parties have a relatively high recognition of the second-class soybean sales price of 4600 RMB/ton and the third class soybean purchase price of 4,600 RMB/ton. As the two-way auction sells first and then buys, the profit margin of the participating parties comes from the current spot sales price minus the later soybean purchase price. The large number of traders participating in the two-way auction indicates their expectation that soybean prices will further decline in the later stage.
- The impact of floods is limited, but high yields are still highly probable
According to the national precipitation anomaly percentage data from the Central Meteorological Observatory, in the past 30 days (July 6-August 5), the precipitation in the soybean producing areas of the eastern part of Northeast China and the Huang Huai region of North China exceeded the same period in previous years, and some areas were affected by floods, which was unfavorable for soybean growth and harvest. In addition, based on the precipitation forecast for the next 10 days, the precipitation forecast for the soybean production areas in the eastern part of Northeast China and the Huang Huai region of North China is still biased, which is not conducive to the smooth harvest of early maturing soybeans in Guannei. As a result, the listing period of early maturing soybeans in the region may be later than in previous years, and the supply of soybeans in the region may be delayed, which also benefits the near month contract price and is bearish for the far month contract price.
This year, there has been excessive rainfall in the Northeast and North China's Huang Huai region, causing disasters. However, the impact of floods on soybean production may be relatively limited. As the saying goes, 'drought is a large area, while floods are a line.' The negative effects of floods are mainly concentrated near rivers and low-lying areas, which account for a relatively limited proportion of the total soybean planting area. In addition, there is a saying in agriculture that goes' dry valleys flood soybeans'. Soybeans are water loving crops, and sufficient precipitation has limited adverse effects on their growth. Overall, the area and impact of floods and waterlogging disasters in domestic soybean production areas this year are limited, and the high yield of domestic soybeans is still a high probability event.
Recently, the price of third class domestically produced soybeans in Dalian has remained stable at 4,650 RMB/ton, hovering around the lowest point of 4,640 RMB/ton this year. From the past four years, after the large-scale listing of soybeans in Northeast China in October, there have been seasonal declines in soybean prices in three out of the four years. Only in 2021 has there been a counter seasonal upward trend (due to the significant increase in corn prices in 2020-2021 and the significant decrease in the planting area of domestically produced soybeans). This year, the planting area of domestically produced soybeans in Northeast China continues to grow, and seasonal declines may be difficult to avoid.
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