Weak crush margins likely to keep China's soybean demand low until May: sources

New Delhi — China's demand for soybeans is likely to remain slow until May amid weak crush margins, which is expected to pressure exports from the US and Brazil, market sources said March 24.

"China might have cut its demand for April and May, as almost all crushing plants are running below capacity in the country," a trader said.

In addition, some crushers see negative crush margins extending China's demand slide until July, as opening demand for June shipment is seen at limited volumes.

China's sliding soybean demand is seen as bearish for the US and Brazilian soybean exports as the Asian nation accounts for over 60% of oilseed shipment purchases from the top two suppliers.

Crushers in China, the world's largest soybean and pork consumer, have been reluctant to purchase beans shipments as demand for soymeal-based animal feed has plummeted since the Lunar New Year celebrations in February, sources said.

"Soybean meal demand has slowed down for a month, we have not seen a sign of a recovery in demand yet," a China-based crusher said.

For the 2020-21 marketing year (October 2020-September 2021), China Soybean Gross Crush margin for May shipment was assessed at 70 cents/mt March 23, compared with the pre-holiday level of $29.1/mt on Jan. 25, according to S&P Global Platts data.

Monthly average for China Soybean Gross Crush margin in March was assessed at $1.98/mt, compared with $28.13/mt and $16.59/mt in January and February, respectively, Platts data showed.

According to the local crushers, once the gross margins fall below $20/mt threshold, losses start to pile up. As a result, the crushing plants adopt a cautious approach and stop purchasing raw soybeans until the margins improve.

ASF resurgence in China

There have been reports of ASF outbreaks across some parts of western China since January. But the market analysts view them as isolated incidents, unlike 2018 and 2019 outbreaks, when almost whole of Southeast Asia was affected.

As soon as the latest ASF virus strains of the January outbreak were discovered, hundreds of pigs were culled as a preventive step, reducing the chances of contagion, the sources said earlier.

"Although the latest outbreak is not a serious issue in China at the moment, we need to watch how this develops in coming days because the resurgence of the epidemic in China will affect market sentiment badly, particularly when the swine production capacity has not yet recovered completely," Shanghai-based agricultural consultancy JCI China told Platts in February.

Since late 2019, China has been quick to implement strict quarantine measures whenever an ASF outbreak is discovered.

According to China's Agricultural Ministry, or MARA, six ASF outbreaks were reported in China in 2020, with the last having occurred in October. All the six outbreaks were dealt with quick quarantine measures and stricter inter-provincial transportation policies, MARA said.

China's pig farming sector has experienced a rapid consolidation since late 2019 as small-scale farms were amalgamated into big entities under a government directive and over $30 billion invested in the consolidation, a Beijing-based consultancy said.

China's hog producing capacity continued to grow in January and February, with the sow herd increasing by 1.1% and 1% month on month, respectively, according to the latest survey data from MARA, released March 18.

China's sow herd has recovered to 95% of pre-ASF 2017 level, as of Feb. 28, up 2 percentage points from Dec. 31, MARA said.

However, country's hog herd is seen at 400 million head by Feb. 28, compared with 406 million Dec. 31, National Bureau of Statistics said March 18.

Notwithstanding the current slowness in beans purchasing, China's long-term demand outlook for soybeans is likely to reach record levels.

China is expected to import an all-time high 100 million mt and 110 million mt of soybeans in the 2020-21 and 2021-22 marketing years, respectively, as the country's swine herd is likely to recover fully from the African swine fever epidemic by the first half of 2021, S&P Global Platts Analytics said.