Bumper soybean crops in Brazil have been a boon for China for much of 2018, as last year’s record yields helped Xi Jinping maintain a tough stance in the trade war with the US while it switched to soy imports from Brazil. However recent dry spells in the country have now become a cause for concern as the 2019 harvest is underway and Predata’s digital index on Brazil drought has spiked, suggesting that yields may not be quite as high as previously expected.
However even if yields disappoint expectations and provide support to the global soybean market broadly, we may still not see a net boost in Brazilian export prices. Premia versus US soybeans collapsed after the temporary trade war truce, and the Trump administration looks more amenable to a trade deal in order to bolster the US stock market after its end of year losses. Predata signals around concern in the trade war from both English and Chinese sources have been muted, and historically, less public scrutiny tends to leaves more room for diplomatic compromise.
Digital interest in Brazil’s largest soybean producer, Amaggi, has indeed spiked in conjunction with these concerns as markets await updated local harvest reports at the end of this week. These reports along with any external data will be especially important this season as the US government shutdown has stalled official USDA reports indefinitely.