China soybean crush margin turns positive after 2 months, headwind remains

China soybean gross crush margins for October have rebounded from negative to positive territory, with Platts, part of S&P Global Commodity Insights, assessing it at $0.37/mt Aug. 25, up from minus $7.85/mt Aug. 24.

The gross crush margin was last seen positive on June 15 at $8.09/mt.

Soybean oil and meal, the byproducts of soybean crushing, posted gains of 5%-9% over the past two weeks.

Soybean meal January 2024 contract prices on the Dalian Commodity Exchange rose to Yuan 4,075/mt ($559/mt) Aug. 25, up 5% or Yuan 192/mt from Yuan 3,883/mt ($533/mt) on Aug. 14, due to tighter domestic supply in China.

For January soybean oil contract, prices closed at Yuan 8,486/mt ($1,164/mt) Aug. 25, up 9% or Yuan 698/mt from Aug. 14 when the contract was valued at Yuan 7,788/mt ($1,068/mt).

The Platts soybean crush margin at $0.37/mt is based on January 2024 contract prices of soybean oil and meal, but the market also demands on the economics of the replacement margin which calculates using spot byproduct prices rather than futures prices to guide decisions on crushing.

According to some crushers, the replacement crush margin is way higher at around Yuan 200/mt ($27/mt), based on spot calculations on Aug. 25. The figure varies for crushers, based on the scale of production and overhead costs.

Crushers face headwinds despite positive margins

"The replacement crush margin is quite healthy and with the increasing profits secured on the DCE, crushers would definitely do more, but there are limitations on machinery capacity and inventory levels," a Chinese crushersaid.

Market participants mentioned that some crushing plants might be facing potential shortages of the yellow oilseed and therefore, enterprises have to either reduce their run rates or shut the plant down.

"For now, the issue [of soybean tightness] exists, but not many plants are shutting down yet, and this could be the reason for increasing product future prices on the DCE. There could be units that have run at high operational rates that has led to stress breakdown," a second Chinese crusher said.

Market sources estimated domestic crushing volume in China to hover at 1.8 million-2 million mt for the week of Aug. 28-Sept. 1.

Hog breeding

Meanwhile, hog breeders are trying to make ends meet as live hog prices were heard to maintain within Yuan 17-17.2/kg ($2.3/mt), improving from previous months, when some procurement of meal made earlier could be profit-making.

"The barriers to entry for hog breeding is relatively lower compared to other industries, the main thing is scale and financing that large corporations have in order to maintain a positive margin," a Chinese hog breeder said.

Despite positive margins, crushers were heard to not be actively booking soybean cargoes in the market, as bidding ideas were not seen in the week ended Aug. 25.

As soybean meal and oil contract prices on the DCE increased, Platts SOYBEX October CFR North China prices found support on hot and dry weather concerns in the US planting regions continuing to push prices trends higher, on potential low yields creating a supply crunch situation.

"The market has reacted to thePro Farmer crop tour estimates compared to USDA forecast and fueled by the hot and dry conditions for soybeans," a Chinese broker said.

CBOT November (X) futures contract rose 34.75 cents/bu or 2.6% on the week at1,378.25 cents/bu Aug. 25, compared to 1,343.5 cents/bu on Aug. 18.