China's 2019-2020 soybean demand to remain strong despite COVID-19, African swine fever

New Delhi — China's soybean demand is forecast to remain strong in the 2019-2020 marketing year from October–September despite concerns surrounding the coronavirus pandemic and the African swine fever, analysts told S&P Global Platts.

COVID-19 has spread across the world unabated since early 2020, forcing most governments to slash growth and consumption forecasts, according to the US Department of Agriculture.

The global economy is projected to contract sharply by 2.4% in 2020, while China's economic growth forecast has been slashed to 1.2% in 2020, down 1.7 percentage points from earlier estimates, according to S&P Global Ratings.

However, demand for soybeans is not expected to bear the brunt of this economic deceleration due to the relative inelasticity of food demand, according to the analysts.

China's soybean demand in the 2019-2020 marketing year is expected at 89 million mt, up 8% year on year, the USDA said in its April world agricultural supply and demand estimates report.

Market participants anticipate the world's largest soybeans importer to accelerate its beans purchases to cover for pandemic-led uncertainty hovering over port operations in South America, as trucking and port unions have threatened to shut operations due to COVID-19 quarantine and contagion concerns.

While port authorities in Brazil and Argentina said they are maintaining normal operations, there is a high probability of union strikes and shutdowns if the death toll mounts, sources said. The coronavirus pandemic has already claimed over 2,500 lives in these two countries.

China has been buying numerous cargoes of Brazilian soybeans, suggesting very little long-term impact to demand due to the pandemic, said Pete Meyer, Platts head of grain and oilseed analytics.

In the first three months of the year, China bought 13.3 million mt soybeans from Brazil, up 10% on the year, according to the latest Brazilian customs report.

China's soybeans import in April is forecast at 13 million-14 million mt, jumping 225% month on month and 75% higher on the year, according to analysts. The analysts anticipate gradual easing of port restrictions and a smaller quarantine waiting period from April.

Even for May and June, China's soy imports coverage is estimated to be in the average range of 95%, market sources said. In fact, Chinese buyers are currently focused mostly on booking July and August soybean shipments.

Logistical issues

The coronavirus disease has had a bigger effect on logistics than soy demand, said Meyer. The pandemic has caused bottlenecks at ports and work stoppages at crushing plants and feed factories in China.

Operations at Chinese soybean crushing plants in early 2020 were delayed by seven to 10 days due to movement restrictions on labor and other government actions to contain the pandemic, the USDA said. Production at feed mills and farms was also interrupted due to movement restrictions on vehicles and personnel throughout the country.

However, according to a survey by China's Ministry of Agriculture and Rural Affairs, or MARA, 80% of feed mills resumed normal operations since the beginning of March.

Despite the temporary slowdown in logistics in China in early 2020, we do not see the pandemic impacting country's soybean demand in the long-term forecast, said Matheus Pereira, director of agricultural consultancy ARC Mercosul.

African swine fever

China is slated to recover from the African swine fever epidemic in 2020, the USDA said. A gradual recovery of swine and crush sectors will also push up soybean imports in 2020, the agency added.

African swine fever wiped out almost half of China's pig population since its outbreak in August 2018, with over 200 million culled, market sources said.

No large scale culling of pigs is expected to happen in China at present, and pig farming is recovering with large pig farming companies expanding their pig herd, said Rosa Wang of agro consultancy JCI China.

Soybean meal demand will increase in 2020 due to China's shift toward more large-scale swine operations, with increased use of commercial feed versus swill feed, according to the USDA. Soybean meal feed use is forecast to increase to 65.1 million in 2020-2021 from an estimated 63.4 million mt in 2019-2020.

According to MARA, China's overall sow inventory increased by 1.2% in January from December 2019, while large-scale swine farms saw a higher rate of sow inventory growth at 2.2% month on month.

Chinese agricultural officials were positive that 80% of its pig production will recover in 2020, JCI added.

There will certainly be blips of COVID-19 recurrences and a possible flare up of African swine fever once again, but for the most part, the worst is over for China, said Meyer, adding:

"We believe China can import up to 90 million mt by the end of current marketing year in September, up 9% year on year."