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Argentina soybean meal prices seen competitive to China, but issues remain

Sao Paulo — Soybean meal prices in Argentina are low enough to arrive in China at competitive levels until the end of 2019, S&P Global Platts assessments showed Wednesday.

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China and Argentina signed a historic deal Wednesday after 20 years of negotiations that allows the latter to sell the animal feed to China.

However, market participants said it was not clear if China will play that card yet, as the country continues negotiations with the US on a wider trade deal.

Taking into account Platts' latest price assessment in the Up River region in Argentina, plus the freight into China and other costs like discharging and tax, Argentinian meal is competitive up to the end of this year.

Details of the deal were yet to be published, but considering that soybean meal FOB-Up River prices were assessed at $301.26/mt Tuesday, the freight into China calculated at $52/mt, and other costs like discharging and tax, Argentinian meal delivered into China was estimated at $404/mt -- competitive versus regional production up to the end of this year.

"Considering the levels that China is paying for the beans, economically speaking, could make sense to do it to lower feed price levels until new crop. Maybe for a couple of months," a source in Argentina said.

"(Crush) margins in China are about minus $10/mt today, so might make sense to buy some Argentinian meal. But I don't think they will buy much meal," another source in Argentina added.

Looking forward to 2020, soymeal from Argentina becomes pricey compared with China's own production as there's a carry in the Argentinian market until new crop beans are harvested, and on the other hand, there's a backwardation structure in soymeal in China.

Talks about this deal have been hovering over the meal market in Argentina in the past weeks, although even with strong rumors about the deal on its way, market participants in both countries were not convinced that a deal would be reached.

Argentina is one of the largest soymeal producers and the largest exporter. The country alone was responsible for more than 40% of total soymeal exported in 2018/2019 crop season, according to USDA numbers.

In contrast, China is the world's largest feed meal consumer. According to the USDA, China accounted for about 30% of worldwide soybean meal consumption in the 2018/2019 season.

Despite the large meal usage in the country, soymeal imports into China have been historically low as the country has a large crushing capacity installed and produces its own meal.

The installed crushing plants are one of the main reason for market participants to doubt whether imports will actually happen. Chinese crushers said it makes no sense for the government to encourage meal imports instead of beans as this will hit the domestic industry.

-- Analyst Ivy Li, ivy.li@spglobal.com, newsdesk@spglobal.com

-- Edited by Manish Parashar, newsdesk@spglobal.com