April 25, 2013

 

 

With disappointing economic data and the spread of bird flu, market expectations of China's imports of soy are taking a further knock.

 

Many analysts cautioned earlier this month that the USDA, in cutting its estimate for China's soy imports in 2012-13 by 2.0 million tonnes to 61.0 million tonnes may remain too optimistic.

 

However, many traders are questioning whether even that estimate is too large, given disappointing economic data from China, including a below-forecast economic growth number of 7.7% for the first quarter of the year, besides the threat to the poultry industry, and therefore feed demand, from the bird flu epidemic.

 

The World Health Organisation on Wednesday (Apr 17) termed the H7N9 bird flu strain, which has infected 108 people and killed 22, "an unusually dangerous virus for humans".

 

The continued bird flu casualties, "coupled with weaker economic data has grain traders reducing the estimated amount of soy China will need to import this year", Paul Georgy, president of broker Allendale, said.

 

Brian Henry, at Minneapolis-based Benson Quinn Commodities said that "the trade continues to focus on ideas that the government's estimate for Chinese soy imports for the coming marketing year should be closer to 58 million tonnes than the current estimate of 61 million tonnes.

 

Furthermore, Chinese crush margins are weakening, falling some RMB20 (US$3.24) a tonne into the red according to Morgan Stanley, having topped a positive RMB40 (US$6.48) a tonne earlier in the year.

 

At Chicago-based RJ O'Brien, Richard Feltes flagged talk of even lower numbers. "We hear trade estimates as low as 56-57 million tonnes for 2012-13 Chinese soy imports," he said.

 

"Bird flu, slower Chinese economic growth and prospects for lower-priced soy this fall are leaving Chinese buyers cautious compared with recent years. If April, May import numbers do not pick up dramatically, the trade is going to be increasingly sceptical over import prospects," Feltes said.

 

Henry added that while such talk was "definitely part of the market mind set", and that traders had "reasons to be concerned" over the slowdown in Chinese economic growth, he was sceptical over how far soy imports would fall.

 

While there was potential for China to start rolling over 2012-13 orders of US soy to next season. However, Chinese buyers having only 1.1 million tonnes of sales outstanding for this season, having already imported 21.3 million tonnes, there was little scope for a dent to demand for US soy. The US was last season overtaken by Brazil as the major soy supplier to China.