Global soybean market to rebalance as Chinese demand recovers

Global-soybean-market-to-rebalance-as-Chinese-demand-recovers-4265.jpg      Global soybean market to rebalance as Chinese demand recovers

After a year of slowing demand and record high stocks, the global soybeans market is expected to rebalance in 2020 as China recovers from the devastating African Swine flu disease and global inventory levels ease on slowing production.

Global soybeans output is expected to fall by 21.65 million mt, or 6%, to 336.56 million mt in marketing year 2019-20 (September-August) – the first decline in production since 2016-17, led by a 24 million mt year-on-year drop in the US soybean sector, the US Department of Agriculture said in its December World Agricultural Supply and Demand Estimate report.
The drop in output is expected to lead to some destocking and global stocks are expected to fall by 13% to 95.42 million mt in 2020 – back to levels last seen in 2016-17, the USDA said.

China’s soybean demand, meanwhile, is forecast to rise 3% year on year to 85 million mt, in 2019-20 due to pork industry consolidation, which enables better pig inventory management and biosecurity measures, the USDA said in its Global Agricultural Information Network, or GAIN, report, published in October 2019.

China is the world’s biggest soybean buyer and accounts for over 64% of global soy trade. Over 80% of imported soybeans are processed into animal feed in China, which is also the world’s largest pork producer and consumer.

China could import 85 million–87 million mt of soybeans in 2020, said Pete Meyer, head of grain and oilseeds at S&P Global Platts Analytics. “Chinese pork industry consolidation will certainly lead to more control and less future ASF outbreaks,” Meyer said.

In comparison, China imported 82.5 million mt of soybeans in 2018-19, down 12% on the year, according to USDA data.

The deadly ASF led to a 39% and 41% respective drop in sow and hog inventories in China in September 2019, latest data available from the Chinese Ministry of Agriculture and Rural Affairs showed.

But Chinese pig numbers are expected to recover in 2020 as the big pig farming companies have started to consolidate, while majority of the small and medium sized pig farms have been wiped after millions of pigs were culled due to ASF, according to the USDA.

Large pork companies with dispersed production can control and manage the impact of future ASF outbreaks, a Chinese analyst said.

“No large scale culling of pigs is expected in 2020 and pig farming has started to recover in the country with large pig farming companies expanding their pig herd,” Chinese agro consultancy JCI China told S&P Global Platts, adding that Beijing expects 80% of the pig production to recover in 2020.

China’s domestic soybean production in 2019-20 is forecast up 14% on the year to 18.1 million mt due to higher planted area and yield, according to China’s National Bureau of Statistics.

But even with higher domestic soy production forecast, China’s beans imports are expected to increase year on year as the local production covers only around 15% of average total supply per year, sources said.

The evolution of the US-China trade talks is expected to continue dominating soybean trade flows in 2020, particularly the flow of Brazilian soybeans to China.

As the US-China trade dispute lingered, Brazil became China’s biggest soybean supplier, covering almost 80% of the country’s demand. But that position may be in jeopardy after the US and China in mid-December agreed to a first phase of a trade deal.

Brazil’s soybean exports in 2020 could be largely dictated by Sino-US trade ties, according to Brazilian national crop agency Conab. China may be forced to cut back soybean purchases from Brazil to fulfil its trade deal obligations with the US.

But despite the trade deal, doubts prevail over its continuity as the Asian giant might not be able to buy $40 billion worth of US agricultural products annually due to economic and commercial reasons, market sources told S&P Global Platts.

The Chinese quarterly economic growth in the July 1-September 30 period has slowed to 6%, the lowest in three decades, which means that the country’s purchasing capacity has depleted, an industry source said.

In this scenario, it is highly unlikely for China to up its agricultural purchases from the US without cutting down on trade volumes with other countries, such as Brazil.

However, the Chinese side has offered no details on its purchase commitments.

“The $40 billion per year is unattainable as well as unenforceable,” Platts Analytics’ Meyer said. “In theory, we should see more US goods flow into China [after the phase one deal], but given the Chinese investments into Brazilian infrastructure, I am a bit suspect on this deal, especially since no trade volumes are mentioned.”

Until 2017, before the US-China trade dispute started, China was buying $25 billion worth of US agricultural products on average every year.

Despite the recent spike in US pork exports to China, soybean is by far the most significant component in agricultural trade ties between the two nations, trade sources said.

On average, soybean comprises over 50% of US exports to China per year, while pork, beef and poultry comprise a mere 5%, 4% and 2%, according to the USDA.

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