China is grappling with a surplus of soybeans, driven by record-high purchases that are inflating stockpiles while demand for animal feed remains weak. This glut threatens to diminish China’s import appetite during the September-December period, the peak season for U.S. soybean exports, and could further pressure prices that are already near four-year lows, according to traders and analysts.
“The primary issue is stagnant demand for soybean products,” noted a Singapore-based trader at an international company operating oilseed processing plants in China. “Crush margins are being squeezed by the large influx of beans.”
Soybeans are processed into soymeal, a key protein source for feeding China’s vast pig herd, and soyoil, used mainly for cooking. Sluggish economic growth in China, which consumes nearly half of the world’s pork, is dampening meat demand.
China’s soybean imports for July, predominantly from Brazil, are expected to reach a record high due to lower prices and the potential return of Donald Trump as U.S. president, which could reignite trade tensions, according to traders.
“Pork demand in China is weak,” said Pan Chenjun, a senior livestock analyst at Rabobank in Hong Kong. “While pork prices have risen, it’s more due to a tight supply of hogs rather than improved demand.”
Hog breeders are reducing their sow herd sizes in compliance with government directives to address overcapacity and are delaying slaughter to sell at heavier weights. Official data indicates that China’s pork output declined in the second quarter, and its pig herd fell from 408.5 million to 415.33 million head.
The benchmark Dalian soymeal contract has dropped nearly 8% over the past three weeks, while soyoil prices fell around 4% last week. Crush margins, already negative since early June, have worsened this month, with oilseed processors in Rizhao losing over 600 yuan per ton, the largest drop since February.
Since February, state stockpiler Sinograin has auctioned around 9.68 million tons of imported soybeans, but only 2.08 million tons, or 21%, were purchased by crushers, according to Reuters’ calculations. In comparison, about 27% of soybeans offered at auction were sold last year, with higher participation rates, noted Darin Friedrichs, co-founder of Shanghai-based Sitonia Consulting.
“It’s challenging to be optimistic given the broad decline in protein prices and weak demand,” Friedrichs added.
China’s agriculture ministry has forecast a decrease in soybean consumption for the 2024/25 marketing year to 114.56 million tons, compared to an estimated 115.24 million tons for 2023/24.
Benchmark Chicago soybeans, down 20% in 2024, may face further challenges due to anticipated weak Chinese demand and higher U.S. output. Brazil has now overtaken the U.S. as China’s top soybean supplier, accounting for 70% of imports.
Source: Reuters
