Chinese crushers catch up soybean activity, soymeal price at turning point: trade

The Chinese soybean meal price was moved into a downward trend for the first time since it reached a historic average high of Yuan 5,660/mt on Nov.10. Chinese crushers expect the drop to continue, as they catch up on soybean crushing volumes starting from this week.

According to industry sources, as of Nov. 22, the average spot soybean meal price was Yuan 5,000/mt for regions in North China, down by 9% week on week.

Higher crushing volumes

The soybean crushing volume last week was slightly up, from 1.3 million mt to 1.5 million mt. With a higher soybean import volume, the soybean crushing volume this week is expected to reach 2 million mt, up 33%, several industry sources said.

"With the accumulative import volumes of soybean in November and December expected to be ranged at 16-18 million mt, the weekly soybean crushing volume in China is expected to be above 2 million mt in December and January," a Chinese soybean analyst said.

As of Nov. 21, soybean meal inventories were still down by 20% month on month. Compared with the same period of last year, the meal inventory was down by 55%, market sources said. The huge decline in inventory was led by tight soybean supply and recovering feed demand for hog raising since June.

The inventory is expected to increase gradually in December after crushers speeding up soybean crushing activities with better soybean supply, the analyst added. However, the build-up of soybean meal inventory might be slower before the Chinese Lunar New Year as feed demand for hogs is expected to be strong.

Replacement crush margin for forward months

The hog inventory in China is likely to drop after the Lunar New Year holiday. It takes a longer time for farmers to restock the hogs, hence, the feed demand will probably be weaker during February and April, during which the soybean meal inventory will start to build up faster.

As a result, potentially higher inventories will suppress soybean meal prices for February-April delivery months.

"It is getting harder to ask feed millers bid up for soybean meal of forward delivery months as the price is trending downward," a Chinese crusher said.

The meal price will drop more during the end of Q1 2023, and crushers are concerned about the replacement crush margin for February to April next year, he added. The replacement crush margin can be calculated by the difference between the total cost of imported soybean and the sum of spot soybean meal and oil prices.

"As we are unsure whether the replacement crush margin is going to be positive in Q1 next year, we are not motivated to purchase more soybeans for nearby shipments unless prices are attractive," another Chinese crusher said.

Meanwhile, the soybean price was also on a decline trend during last week. Platts assessed CFR China first month $1.38/mt higher at $623.27/mt Nov.22, 5.8% down week on week, and 4.1% down month on month.

However, industry participants believe that the soybean import costs will probably remain relatively higher due to limited supply of old crop in South America. The potential return of the Argentinian Soy Dollar program might provide additional downward pressure on soybean prices. Market speculation has suggested that the so-called soja-dollar rate in Argentina would be set at 220, compared with the current official peso rate at 163, a Chinese trader said.

"We are waiting for the Argentinian government to make an official announcement on the implementation of soy dollar program during this week before purchasing more soybeans from Brazil and US for nearby shipments," a Chinese buyer said.

In the long run, potentially higher production volume of soybean in Brazil, estimated to be 152 million mt, up by 20% year on year, would bring down the soybean prices for February shipments and onwards, supporting the crush margin in China after Q1 2023.