China's soybean demand in marketing year 2021-22 (September-August) is unlikely to slacken despite a lingering negative crush margin since June, analysts told S&P Global Platts, adding that this is set to further support already elevated global prices.
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According to S&P Global Platts Analytics, China is forecast to import up to 102 million mt and 104 million mt in 2021-22 and 2022-23, respectively. This is certainly a sizable increase from the US Department of Agriculture's estimate of 97 million mt in 2020-21.
"With the exception of 2018-19, when China's pig population growth was adversely impacted by the African swine fever epidemic, the country's soybean imports have had a steady increment of 4 million mt every year since 2013-14," said Pete Meyer, head of grains and oilseeds analytics at S&P Global Platts.
He added that Platts Analytics forecasts a continuation of this trend in the upcoming marketing years.
There have been concerns in the global agricultural community regarding the negative crush margin in China since June 2021 though.
Crush margin is the profit derived from processing soybeans into soybean meal and oil.
According to S&P Global Platts assessments, the average China Soybean Gross Crush margin has been seen at minus $7.10/mt, minus $7/mt and minus $5.25/mt in June, July, and August, respectively. This is in stark contrast with $19.90/mt and $28/mt of margins estimated in December and January, Platts data showed.
Raw soybean prices have gained over 40% on the year, which has put a lot of pressure on the crush margin, a China-based crusher said.
According to S&P Global Platts, SOYBEX CFR China for October deliveries were assessed at $618.03/mt Sept. 3, up $176/mt year on year.
However, Platts Analytics sees limited impact of the negative crush margin on China's soybean demand.
If the margins remain low in the coming months, China's soybean purchases in 2021-22 may be cut by a maximum of 1 million mt from current projection of 102 million mt, Meyer said.
Soybean demand and supply gap
China's domestic soybean production has hovered around 18 million mt on average for the past few years, according to the USDA data. But the country needs close to 115 million mt every year to satiate its hunger for the oilseed. As a result, China is heavily dependent on soybean purchases from the world's top two suppliers, Brazil and the US, to fill this vast gap between domestic beans supply and demand.
Being the world's largest producer and consumer of pork, China needs huge quantity of the oilseeds to feed its burgeoning pork industry. Thus, the country processes over 80% of imported beans into animal feed, primarily for its soaring swine population.
According to China's Ministry of Agriculture and Rural Affairs, the country's live pig population is expected to cross 440 million heads in 2021, compared with 310 million and 360 million heads in 2019 and 2020, respectively. MARA expects this upward growth trajectory of hog herd to continue in coming years.
Buoyed by MARA's optimistic outlook on China's swine population growth, local commodity consultancies are seeing record influx of soybeans for the animal feed industry.
"For 2021-22, our forecast for China's soybean imports is 110.5 million mt, against the USDA's projection of 101 million mt," Shanghai-based agricultural consultancy JCI China told S&P Global Platts.
The main reason for this increase is the recovery of Chinese pig farming industry from the ASF epidemic, it said.
The ASF first emerged in China in August 2018, which resulted in the loss of over 50% of its swine population within a year. Following large-scale quarantine measures, over 200 million pigs were culled that year, leading to a massive shortage of pork in the country and record pork prices.
To eradicate the epidemic, China's pig farming sector was rapidly consolidated and thousands of small-scale farms were amalgamated into big entities under a government directive and over $30 billion were invested in the process, a market source said.
As a result, over 15,000 large-scale pig farms resumed operations in 2020, with another 13,000 newly built large farms added into the production chain, a MARA official said.
China-based soybean crushers are also worried over the rising trend of wheat usage in pig feed and the consequent sharp decline in soybean meal demand.
To control rising food inflation, the Chinese government suggested local pig breeders to use low-cost alternatives to soybean meal, such as wheat-based animal feed. As a result, soybean meal usage in animal feed has slowed in recent months.
But agricultural commodities trader Bunge's CEO Gregory Heckman is optimistic on soybean meal demand recovery in China as he sees wheat substituting soybean in animal feed as a temporary event.
Historically, wheat gets cheap, comes in the animal feed ration and then its price adjusts higher, and then eventually the demand shifts to soybean meal, Heckman said in May.