China's Soybean Buying Makes Short-Term Dip

May 26, 2011 08:31 PM

China's demand for U.S. soybeans eased recently as South American supplies hit export markets, but the long-term trend in Chinese buying is still strong.

“China has been out of the U.S. market for about two months,” says Mike Hogan, Market360 director at Stewart-Peterson, Inc., West Bend, Wis.
U.S. soybean export sales as of April 14 had reached 97% of USDA's projection for 2010-11 and gained to 97.9% as of May 12. “So in one full month we did not add 1%,” says Hogan. “That's a horribly slow pace.”
The weekly volume of soybean export inspections had been running from around 30 million bushels to more than 40 million bushels early in 2011. The pace dropped to 5 million to 8 million bushels in recent weeks.
Hogan notes that China bought early this year and cites two factors in reduced Chinese demand:
  • South American supplies became available and the Chinese economy slowed from nearly 10% inflation two months ago to about half that last month.
  • Reduced inflation usually means business is slowing.

Swine Industry Drives Soy Demand

China likes to buy and process beans to keep the value added in crushing into meal and oil. USDA's Foreign Agricultural Service says that rising incomes in China indicate strong demand for soybean oil. “Demand for soy meal is likely to grow as the hog sector recovers from earlier reductions caused by diseases and low prices,” says FAS.
Even though Chinese buying eased recently, growth in China's poultry and pork production, which drive soybean demand, appear to be on track.
Assuming that China's economy continues to grow at its current rate and creates jobs, people will continue to move from the country to cities, says Paul Burke, director of global marketing and industry relations at the U.S. Soybean Export Council in St. Louis. “Based on that outlook, one would be able to make an easy assumption that China will continue to need to increase its imports of soybeans for processing to produce soybean meal to supply the animal agriculture industry in China,” says Burke.
The world's largest swine herd is in China. About half that herd still is fed table scraps or other products, rather than formulated feeds that use soybean meal. The Soybean Export Council cites statistics from China showing that the commercialized share of the swine industry grew from 23% in 1998 to 56% in 2008, and was still trending higher.
During the same years, China's imports of U.S. soybeans soared from about 2 million metric tons to 18 million.
“There is a lot of room for continued growth in the Chinese feed and livestock industry,” says Burke.

Short-term Exports Off

Despite those long-term prospects, USDA analysts this month reduced their estimates for U.S. soybean exports in 2010-11 because export shipments had slowed and Chinese demand had eased. July and November futures retreated from their April highs but partially recovered since mid-May.
USDA projects U.S. total exports in 2011-12 at 41.9 million metric tons, up less than 1 million from exports to date and outstanding sales for this season. Exports from Brazil and Argentina likely will climb on big crops.
China will account for 60% of global soybean imports in 2011-12, up from 59% this year and 42% in 2006-07, says FAS. China's share of global crush likewise gained from 18 percent in 2006-07 to 25 percent this year and a projected 26 percent in 2011-12.
“Global trade is projected at a record spurred by strong demand in China and ample exportable supplies in South America,” says FAS.
The soybean shipping season from South American has been lengthening over the years as production increased. “It takes longer to export larger crops,” says one analyst. However, a longer shipping season doesn't necessarily bring a longer period of competition for sales. South American soybeans “can get bought so quickly that by the time the U.S. crop is available, South America is all sold out.”

New-crop Markets

China's economy will be a key factor for new-crop soybean markets, says Hogan, noting that the Chinese have been reluctant buyers for 2011-12. One factor affecting new-crop demand is that the market expects delayed U.S. planting will cause some shift from corn to soybeans.
For producers looking at marketing their 2011 crop, Hogan offers this suggestion: “A $12 November bean put would assure you of a relatively good price at this time,” he says, noting the premium on the put is about 24.25 cents. And, he adds, “We've had $12 beans only a handful of times in 25 or 30 years of trading.”


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