Analyst: Weakness in China Not a Long-Term Threat to Soybean Demand

August 28, 2015 12:11 PM

Concerns over the health of China’s economy–the world’s second-biggest after the U.S.–have sent global markets on a wild ride in recent weeks.

For U.S. farmers, the pain of the turmoil in China is even worse, says Andy Shissler, commodities analyst at S&W Trading in Downers Grove, Ill.

“For grain producers, it’s really depressing right now,” says Shissler, explaining that the prospect of declining exports to China has put downward pressure on soybean futures.  

The fear among U.S. farmers is of China reducing their imports of U.S. crops, he says, particularly in soybeans. China has not been as big of an importer of U.S. corn or other grains, Shissler notes.

For the 2014-2015 marketing year, which ends Sept. 1, USDA puts total U.S. soybean exports at 49.67 MMT. Soybean export sales to China for the current marketing year as of Aug. 20, meanwhile, are tallied at 29.6 million metric tons, up from 27.6 million metric tons from last year.  

The Shanghai Stock Exchange Composite Index, meanwhile, has fallen nearly 40% since peaking in June. Total Chinese imports of all goods are also down 14.6% for the year compared to the same period last year, The Guardian reports.

With so much of the U.S. soybean export balance going to China, CME soybean futures have traded sharply lower due to fears of withering Chinese demand. September soybean futures have lost about $1.66 per bushel since making a recent high of $10.45 ¾ in July.

Shissler, though, reminds farmers not to be too concerned about the volatility in Chinese markets and to resist the panic to sell. 

“I don’t want to market any of my grain right now,” he says. “This is the worst time possible to do it. I’m willing to wait till March if I have to market some grain if I’m not going to do it here. That would be my advice to farmers.”

Shissler sees soybeans trading in a range of $8.50 to $9.50 with Chinese demand returning in the winter to lend more support to prices. This week’s export sales report already logged new-crop soybean sales of 887,500 metric tons to China for the 2015-2016 marketing year, easing concerns of China significantly slowing their pace of soybean purchases.

U.S. soybean exports to China this year likely won’t reach last year’s pace, Shissler argues, but sales next year should return back to previous levels.

Shissler points to hopeful signs of long-term growth in Chinese demand for U.S. soybeans, such as potential growth in the Chinese hog herd after this year’s contractions. USDA currently pegs the Chinese pig crop at 682.3 million head, down from 729.9 million last year.

“I think next year we’re going to return back to what we sold last year because they’re talking about putting more hogs out again this year, and I think the hog numbers are going to start to increase. I don’t think they’re going to feed fewer animals generally,” Shissler says.

When it comes to the long term, Shissler argues that the Chinese economy will likely continue expanding along with demand for U.S. crops. The weakness in the Chinese economy, he tells farmers, is not permanent.  “Their economy is still going to grow, just not as fast,” he says. “It should be relatively stable.”

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Spell Check

Western, NE
8/28/2015 07:18 PM

  It's all perception guys. That's all it's ever been. Stock market in China is down so they're not going to buy food? Really? Wheat market continues to make new contract lows--why? Egypt. Traders constantly point to the fact that Egypt doesn't buy any US wheat. Egypt hasn't been a regular buyer of US wheat for years--since they were a predominantly Christian country. What it will take is a change in the mindset of Wall Street analysts that tell their investors to buy wheat or any commodity for that matter instead of selling it. My contention has always been that the way our boards of trade work, there could be absolutely not a bushel of wheat or other grains in this country, but the price will still go down because of perception. Perception drives the market, throw in errant reports and innuendo and the price wildly moves one way or the other. Money will flow out of the market until the fear of rising interest rates stabilize. I for one, welcome rising interest rates. That coupled with low commodity prices may finally get the land prices in balance to its productive capacity!


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