China soybean market weakens amid falling crush margins, COVID-19 lockdowns

China's soybean market has weakened on negative crush margins and lower downstream demand for vegetable oil amid COVID-19-related movement restrictions and lockdowns in many cities, market sources told S&P Global Commodity Insights.

The state-owned Sinograin has been releasing soybean oil in the domestic market as part of its stocks-rotation strategy, which has added downward pressure on soybean oil prices, the market sources said.

With soybean oil prices holding at levels lower than expected, and weaker seasonal demand for soybean meal, persistent negative crush margins have lowered crushers' buying interest.

The recent drop in crude prices following talks between Russia and Ukraine also brought down soybean oil prices, further lowering crush margins. "The crush margin is declining, and with a negative macroeconomic outlook it is unlikely to see anyone buying for this week even with lower price indications," said a China-based trader.

The gross crush margin was assessed at minus $33.16/mt by S&P Global March 30, down 4% on the week and 128% on the month.

As a result, crushers will probably buy hand to mouth, according to market sources. For May shipment, the open demand projection is at 8 million mt, and 73% of this has been covered. For June shipment, no trades have been heard since the week ended March 25. The demand coverage remains stagnant at 12%, with less than 1 million mt covered out of the total open demand of 8 million mt.

Some crushers in the Northern part of China have halted operations amid COVID-19 outbreaks, the sources said.

"Currently, it is hard to estimate how the crushing operations will be impacted due to [COVID-19-related] lockdowns. However, if lockdowns are not removed, the increased difficulty in cargo collection due to disrupted logistics will lower the downstream demand for soybean meal," said a China-based crusher.

The crusher also said that with lower labor participation and increasing costs, these would likely lead to slower crushing activity and subsequently slower purchasing pace for soybeans.

The market is also expecting the national reserve to release 3.5 million mt of soybeans. About 350,000 mt soybeans will be released each week for 10 consecutive weeks. The official announcement stated that on April 1, 500,000 mt imported soybeans will be auctioned, without further details on futures rounds of auctions.

"The news about the soybeans stocks release has also discouraged buyers from continuing purchases from last week as buyers are waiting for more updates," a Chinese trader said.

Lower demands for soybean have pressured the prices down. The soybean flat price for CFR China first month was assessed by S&P Global at $729.64/mt March 30, down 3.74% week on week.