China seen buying up to 13 mil mt of soybeans from US in Q4: ADM

China could buy 12.5-13 million mt of soybeans from the US in the fourth quarter of 2020 as South American supplies run dry, Archer Daniel Midland CEO Juan Luciano said July 30.

In the company's second-quarter 2020 earnings call, Luciano said China is "taking all the actions that reflect their intention to comply" with the Phase 1 trade deal reached with the US.

Under the deal finalized earlier in 2020, China committed to buy $40 billion of US agricultural goods in a year. Despite the rhetoric and geopolitical escalations seen recently, China has been aggressively ramping up its purchases of US agricultural goods, including soybeans, corn, wheat and sorghum.

In July alone, flash sales of US soybeans to China reached almost 3 million mt, according to the US Department of Agriculture data. The USDA on July 30 reported corn export sales of 1.94 million mt for delivery to China in 2020-21, the largest daily sales total for China, and third highest overall.

"The facts are that they have imported more from the US if you look at corn or if you look at soybeans so far versus last year," Luciano said during the call.

"Brazil is out of beans, and [Argentinian] farmers are not going to sell their beans," the CEO said, adding that on top of that, the US is going to see a big harvest.

Brazil's supplies of exportable soybeans usually become lean at this time of the year, while its next harvest is in 2021. A weakening Brazilian Real and domestic crushers competing to secure bean supplies for the remaining year is also capping exports.

Argentina has its own large crushing industry, and most of its soybeans are directed to the local crushers for soymeal production. Argentina is the world's largest soymeal producer.

Luciano said China is expected to import 95-96 million mt of soybeans this year. China has already imported about 70 million mt from South America, so it needs to import 25-26 million mt more, of which they have already committed for half that total, the CEO said.

"So half is still to be done, which I think is going to be done from the US" in Q4, he added.

Luciano said African swine fever in China has been evolving, which has created a 10 million mt animal protein gap. He said he expects a full recovery from ASF in China to be by sometime later in 2022.

Ethanol recovery

ADM said it was able to sail through the difficult market conditions brought to fore by the demand destruction seen in the ethanol industry as key US states went into lockdown from March to contain the coronavirus pandemic.

ADM's Vantage Corn Processors, which is its ethanol subsidiary, had good risk management on its inventory positions, as it went into the quarter by cutting back on ethanol production, idling dry mills and hedging corn positions at a low cost, Chief Financial Officer Ray Young said.

Strong demand for high-quality USP grade ethanol used for hand sanitizer also supported VCP's activities in the quarter, according to Young.

In April, ADM idled two dry mills in Iowa and Nebraska, and furloughed plant employees for four months.

The company said ethanol margins, gasoline demand levels and ethanol stock levels over the next several months will guide its decision on whether to restart the two dry mills. The two mills have a combined annual production capacity of 575 million gallons.

In April, much of the US' ethanol capacity went offline or operated at a reduced output level, according to S&P Global Platts Analytics.

At the time, US weekly ethanol production fell to a 12-year low below 600 million b/d, as a result of a steep fall in gasoline demand as motorists obeyed stay-at-home orders and driving miles plunged.

ADM said recent data on ethanol looks encouraging, as ethanol stock level are down while margins are responding accordingly to the inventory reductions.

Margins

The company's adjusted operating profit for its Ag Services and Oilseeds segment rose 14% on the year to $413 million in Q2, ADM said.

The profits were driven by record quarterly origination and export volumes in a significantly improved margin environment on the back of a weaker Real and strong farmer selling, Young said.

The company reported Q2 net earnings of $469 million, up from $235 million a year ago.