by Chris Lyddon
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Currency factors have proven bearish in soybean markets in recent weeks, helping exporters outside the U.S. South America has been breaking records with shipments to China. Longer term, reduced rapeseed crops are set to cut international trade volumes.

In its Grain Market Report at the end of July, the International Grains Council (IGC) said “the IGC GOI soybean sub-Index was little changed over the month as pressure from ample global availabilities, improved U.S. Midwest weather and, at times, outside markets, were mostly offset by support from firmer international demand, notably for South American supplies.”

In two-sided trade, U.S. soybean futures settled narrowly mixed, with new crop contracts fractionally weaker, it said. “Initial support stemmed from smaller than expected June 1 stocks data and worries about the impact of excessive moisture on Midwest yield potential. However, gains were later reversed by drier weather in the most saturated areas.

“Outside influences – including a firmer U.S. dollar and weaker markets for energy and vegetable oils – also weighed, as did concerns about potentially reduced demand from China against the backdrop of slower economic growth. Reports of U.S. imports of soy meal from South American origins also mildly pressured.”

Physical markets in South America were mixed, as underpinning from robust export demand was countered by pressure from losses in U.S. futures and an uptick in the pace of farmer sales, it said.

It reported ICE canola futures up by 5%. “Initial support – tied to worries about prolonged dryness in parts of Alberta and Saskatchewan – was outweighed by pressure from weakness in soybeans and beneficial precipitation across parts of the Prairies in the second half of July,” it said. “However, losses were limited by ideas that damage from dry weather was irreversible in some areas.”

The USDA Economic Research Service’s Oil Crops Outlook also noted the effects of the dollar value, identifying it as a factor enhancing Brazil’s competitiveness. “Brazil’s exchange rate lost 8% of its value against the U.S. dollar in July alone and 32% since January,” it said. “Until Brazil shores up the credit rating of its government bonds, depreciation may continue. Under such circumstances, the value of soybean sales in the country could strengthen even more this year.

“Soybean imports by China are largely responsible for this summer’s surge of exports by Brazil and Argentina,” ERS continued. “China’s July soybean imports — at 9.5 million tonnes — were an all-time high and imports from South America for August could be almost as large.”

Improving margins for hog production in the country have encouraged a higher volume of protein meal consumption, it said. “Not all of the soybean supplies might be used right away, so 2014-15 carryout stocks could be above last year’s level,” it said.

Again, currency plays a part. “China’s central bank in August allowed a 2% devaluation of the exchange rate,” ERS said. “This development may indefinitely curtail new U.S. purchases as it will curb crush margins for imported soybeans.”

It also predicted that E.U. import demand for soybeans may also be more pronounced in 2015-16 with reduced domestic supplies of rapeseed and sunflowerseed.

“A higher soybean crush may not, however, fully replace the lower supplies of rapeseed oil and sunflowerseed oil,” it said. “An E.U. vegetable oil deficit would most likely be supplemented by imports of palm oil. At Rotterdam, crude palm oil is currently at its widest price discount versus rapeseed oil in two years.”

The ERS is predicting a big fall in rapeseed stocks, because of smaller crops in Canada and the E.U. The USDA has cut its forecast for global 2015-16 rapeseed production by 2.6 million tonnes to 64.6 million. The figure includes a 300,000-tonne cut in the E.U.’s crop, to 21.1 million, on the basis of lower yields in the United Kingdom, Czech Republic and Romania. With supplies down in major exporters such as Ukraine, the E.U. may not be able to make up its supply deficit.

Australia’s 2015-16 canola crop is also forecast 300,000 tonnes lower than previously, at 3.3 million tonnes. “Rainfall has been mostly favorable so far this season, but canola production may decline on account of a lower estimate of sown area,” it said. “This year, better expected returns encouraged farmers to expand barley, wheat, and oats area.”

The smaller harvest will limit Australia’s capacity to take advantage of the opportunity for more exports to Europe.

It’s not just Europe. “Like other importing countries, rapeseed imports by China will be rationed by the supply shortfalls of its major trading partners,” ERS said.

Chris Lyddon is World Grain’s European correspondent. He may be contacted at: chris.lyddon@ntlworld.com.