Nobody told China’s soybean meal traders that the commodity frenzy is over.
While trading in everything from steel to cotton futures collapsed following steps by the country’s regulators to deflate a speculative bubble in April, the volume of soymeal contracts has continued to expand. The amount of the animal feedstock changing hands in a single day on the Dalian Commodity Exchange is more than the U.S. consumes in an entire year and dwarfs trade on the Chicago Board of Trade.
Prices in China have jumped almost 40 percent this year while U.S. futures have returned more than any other raw material on the Bloomberg Commodity Index. Dry weather in Brazil and flooding in Argentina is threatening supplies of soybeans, which are crushed to produce soybean oil and the meal that’s fed to animals. There’s also speculation that Chinese traders have been surprised by the strength in prices and are now buying to replenish depleted stockpiles.
“Downstream users and traders in China have previously kept low stockpiles of soymeal on the expectation of weak demand and prices,” said Monica Tu, a Shanghai-based analyst with Shanghai JC Intelligence Co., who specializes in the soy market. “In recent months, they had to amend their views and restore inventories, supporting solid gains in futures.”
At the peak, a total of 8.4 million contracts traded on the Dalian Commodity Exchange, equivalent to about 42 million metric tons, compared with 162,000 contracts, or 15 million tons, on the Chicago Board of Trade on the same day. The U.S. is forecast to consume about 30 million tons in 2015-2016, according to the Soybean Meal Info Center. China’s expected to use more than 60 million tons.
Soybean meal futures are near the highest level in almost two years. The contract for September advanced 1.5 percent to 3,281 yuan a ton on Wednesday with an aggregate 7.4 million contracts changing hands. Chicago futures were up 0.6 percent at 5:47 p.m. in Singapore.
Trading’s being driven by concern about supply and demand, in contrast to April’s broader commodity frenzy that was attributed largely to short-term speculators, who boosted daily turnover across the nation’s futures markets by the equivalent of $183 billion. The unprecedented liquidity drew comparisons with 2015’s credit-driven stock market rally that preceded a $5 trillion rout and prompted exchanges to raise transaction fees and margins amid orders from regulators to limit speculation.
Soybean meal is used principally as a protein supplement in food for livestock, including pigs, chickens, sheep and cattle as well in aquaculture. China has almost 60 percent of the world’s pig population and produces about 14 percent of global chicken meat, according to the U.S. Department of Agriculture.
Soymeal demand may also be rising in tandem with rising Chinese pork prices, according to Shen Yijie, a Hangzhou-based analyst at Yongan Futures Co. Hog prices in China have surged this year after the nation’s herd was cut and feed demand may continue to rise as the population recovers, Shen said.