China's soybean imports likely to remain muted in Q4: market sources

China's soybean imports in the last quarter of 2023 are expected to remain muted as crushers are likely to wait until early next year for cheaper Brazilian supplies, market sources told S&P Global Commodity Insights.

The world's largest soybean importer bought 22 million mt of oilseeds between October and December 2022, down 3% on the year. But China-based soybean traders and crushers don't see the country breaching 22 million mt of imports in Q4 this year as overall market sentiment remains neutral.

"We anticipate that China's soybean purchases will not be more than last year's [Q4] volumes," a China-based commodity broker said.

"There is no incentive for higher year-on-year imports in Q4 this year amid tight margins," another broker said.

Mirroring bearish sentiment, some China-based agricultural trading firms don't see any upsurge in the country's soybean imports in Q4 2023.

"In my opinion, there is little probability of China buying higher on-year oilseeds in October-December this year," said an official with a local agricultural trading company. Most local crushers will wait for next year's Brazil harvest, which is forecast at over 163 million mt, making it very price competitive with US-origin oilseed, he said.

"I don't think it (China buying more soybeans in Q4 2023) would happen," said an official with another agricultural trading company. "Firstly, hog breeding margins have not really improved that much, and secondly, the current supply looks sufficient for coming months," he said.

Although pork prices are rising in recent weeks amid steady demand, they are still well below year-ago levels.

According to the Ministry of Agriculture and Rural Affairs report, released Aug. 8, the average price of pork in the national agricultural product wholesale market was Yuan 22.74 ($3.15)/kg, up 17.5% on the month, but still 10% lower on the year.

"In addition, the custom norms have been made a bit stringent in recent weeks, which is another disincentive for the buyers to import more soybeans in coming months," a local crusher said.

China's customs department issued a regulation July 10 that required all imported soybeans to be warehoused before entering the local market. The decree calls for all the traders to store their imported oilseeds at specific warehouses before getting quarantine permission to enter the domestic market.

China's soybean stocks running high

China has been buying a lot of soybeans so far this year from Brazil, a source at an agricultural trading company said. So, perhaps the country doesn't need high volumes of oilseed in the last quarter, he said.

On the back of a record harvest of more than 156 million mt in the marketing year 2022-23 (January-December 2023), Brazil has been able to sell its oilseeds to China at discounted rates in the range of $20-$60/mt for the better part of 2023 so far.

Not surprisingly, Brazilian soybean exports to China between January and July touched a record high of 50.4 million mt, according to a report from Brazil's foreign trade ministry, Secex, released Aug. 7.

Despite Beijing's efforts to reduce soybeans imports by substituting with cheaper alternatives in animal feed mix, it seems that protein-rich yellow oilseed remains the core of China's animal feed sector, analysts said.

In fact, according to the latest customs data, the demand for soybeans has soared in the first half of 2023.

According to the customs report released Aug. 8, the country has imported 62.3 million mt of soybeans so far this year between January and July, up 15% on the year.

The Asian nation typically processes more than 80% of imported beans into protein-rich animal feed, catering to the country's enormous pork sector, a staple diet for most Chinese.

As a result, if China's hog population soars, it directly boosts the country's soybean import demand.

According to the latest data from the Ministry of Agriculture and Rural Affairs, China's hog inventories rose 1.1% on the year to 435.17 million heads in the first half of the year.

Having said that, there are indications that hog inventories may be cut in the coming months. Hog breeders have started reducing their inventories after suffering losses in previous months, a Shanghai-based consultancy said.

The possibility of dwindling hog stocks doesn't bode well for China's soybean demand prospects, but according to analysts with S&P Global Commodity Insights, China's Q4 soybean demand may still be surprisingly high.

"Certainly, we have seen a better-than-expected demand in Q4 given rising hog prices, but we do not believe it will be a market catalyst at this point," said Pete Meyer, crops and feedstock economist at S&P Global. "We would also expect China's demand for soybeans to be filled mostly by Brazil," he said.

According to average analyst estimates, China is forecast to import 96 million-97 million mt of soybeans in the calendar year 2023, compared with 91 million mt in 2022.