Commodities 2021: China's soybean demand set to remain strong in 2021 on swine herd recovery from ASF

New Delhi — After a year of record demand for soybeans, China is expected to continue its robust purchasing of the oilseed in 2021, and thus support global prices, as the country is slated to fully recover from the African Swine Fever or ASF epidemic in 2021.

China's surging beans demand in the 2020-21 marketing year (October–September) has been the prime driver of a 20%-30% year-on-year hike in global soy prices, which are currently in the $10-$14/bu range, as the country accounts for 60% of the global soybean trade, analysts said.

While the US Department of Agriculture and Platts Analytics both forecast China's soybean demand in 2020-21 at an all-time high of 100 million mt, some analysts are even more bullish. According to them, China could import more than 100 million mt due to the country's sharper-than-expected hog and sow herd recovery from ASF.

Analysts pointed out that in the calendar 2020, China's bean imports are estimated at 100 million mt, even though the country's swine inventory has not yet fully recovered.

Backed by a steady process of pork industry consolidation and biosecurity measures, China's swine herd recovery was seen at 90% of the pre-ASF level as of Nov. 30, according to the Ministry of Agriculture, or MARA.

If the current swine growth trend continues, China's hog production capacity is likely to fully recover in the first half of 2021, MARA added.

The world's largest pork producer and consumer lost over 50% of its swine population to ASF, which emerged in August 2018. Following large-scale quarantine measures, over 200 million pigs were culled, leading to massive shortage of pork in the country.

China's pig farming sector has witnessed a rapid consolidation since late 2019 as small-scale farms were amalgamated into big entities under a government directive, a Beijing-based consultancy said.

November hog stocks rose 29.8% year on year and the inventory of farrowing sows went up 31.2% on the year, MARA data showed, thereby boosting pork supplies.

China is heavily dependent on soybean purchases as it processes over 80% of imported beans into animal feed.

HIGHER SOYBEAN RESERVES

China ramped up record volume of soybeans in 2020 to cover for supply-side uncertainties as the coronavirus pandemic spread unabated.

Consequently, China's ending stocks for 2019-20 were estimated at 26.8 million mt, up 38% year on year, the latest USDA report said. The stocks are forecast to remain steady at 26.8 million mt in 2020-21, it added.

Some crushers believe that the Chinese soybeans market is currently oversupplied as the stock-to-usage ratio was seen at 22.98% in September, compared with 19.73% the year before and the five-year average of 20%.

Notwithstanding the oversupply concerns, world's second-largest economy is expected to continue ramping up soybeans purchasing in 2021.

The urgency to enhance China's strategic reserves for grains and oilseeds has been reinforced by trade disputes and the coronavirus pandemic, a market source said. So, to strengthen the national food security measures, Beijing is determined to maintain higher inventory of grains and oilseeds in coming years, he said.

UNCERTAINTY SHROUDS US-CHINA TRADE DEAL

The fate of the US-China Phase 1 trade deal, signed Jan. 15, is expected to be precarious in 2021 under President-elect Joe Biden, who saw it as a failure and advocated the need for a "full review" of the agreement, analysts said.

After 18 months of trade tensions, Beijing signed the Phase 1 trade deal and promised to purchase $200 billion worth of US goods, energy and services within two years, including agricultural goods value at $80 billion.

However, according to Pete Meyer, head of grain and oilseed analytics at S&P Global Platts, the $40 billion/per year purchase deal is unattainable as well as unenforceable.

Although Beijing has shown a significant improvement in its purchases of US soybeans, it has fallen short of the Phase 1 target in 2020 by almost 12 million mt, a Shanghai-based agricultural consultant said. Irrespective of the trade deal, Chinese crushers generally prefer Brazilian beans over US-origin because there is less complexity in Beijing-Brasilia trade relations, he added.

According to the USDA's export sales report, China purchased 31.8 million mt of US soybeans between Jan. 1 and Dec. 17, compared with 10.5 million mt in the same period last year. The country imported over 60 million mt of Brazilian beans between January and November, up 8% on the year, Brazil's foreign trade report said Dec. 5.

Through the first 10 months, China has purchased only 55% of the year one target for all the covered products under the Phase 1 deal, the US Bureau of the Census data showed.

Beijing's lagging pace of Phase 1 purchases, coupled with longstanding bilateral trade issues, such as technology transfer, are the possible stumbling blocks for the US-China trade deal in 2021, analysts said.