May 9, 2013

 

 

Despite demand for the feed crop declined due to the latest bird flu outbreak, China expects record soy imports in May-July, pressuring crush margins and potentially triggering cargo cancellations.

 

A triple whammy of surging imports, sluggish demand and weak processing margins is also likely to weigh on China's orders for US soy when the new marketing season gets underway in September, industry sources and analysts said.

 

Cargo cancellations by Chinese processors and lower demand could depress global prices which have risen 8% in the past month underpinned by tight old-crop supplies and slow farmer selling in the US. Shipments from Brazil, expected to overtake the US as the world's top producer this year, were hit by severe port congestion earlier this year, but loadings have been stepped up and exports last month were at near-record levels.

 

The arrival of those delayed cargoes as well as normal bookings is set to push total imports to China - which buys more than 60% of all globally-traded soy - to nearly 19 million tonnes in May-July, up 13% from the same period last year, according to trade and analysts' estimates. For January-March, China's soy imports fell 13.4% from last year to 11.5 million tonnes.

 

Imports this month are seen climbing to 5.6 million tonnes, according to the China National Grain and Oils Information Centre, an official think-tank, from below four million tonnes in April. China's record imports were 6.2 million tonnes in June 2010.

 

Expectations for a glut of cheap imports and an oversupply of soy have already prompted Wilmar International Ltd and COFCO-owned China Agricultural-industries to cut soyoil prices for retailers by about 15%, local media have reported.

 

Chinese authorities have culled hundreds of thousands of birds in a bid to contain the spread of the H7N9 virus that has killed 31 people and infected 129 others. Poultry sales have dropped 80% in eastern China and about 30% elsewhere in the country. Breeders have cut back on restocking young chicks.

 

The avian flu scare, on top of a series of meat scandals - with rotting pig carcases floating down a major river and rat meat sold as lamb - has hit meat consumption and dented soymeal demand. China accounts for half of world pork consumption and close to 15% of global poultry production.

 

"We expect soymeal demand will fall 15-20% from normal consumption over the next four to five months," said Gao Yanbin, a senior analyst at Jinshi Futures Co. Ltd. "With large soy arrivals from late May, soymeal will be in excess supply ... processing margins for soy could fall to a negative RMB100 (US$16.25) per tonne."

 

That forecast decline - with processors effectively paying to crush soy - compares with profits as high as RMB280 (US$46) per tonne in the first quarter when supplies were tight due to lower imports from the US and the Brazilian port logjams.

 

Singapore-listed Wilmar, one of the biggest soy suppliers to China, said its January-March net profit rose by nearly a quarter, largely due to a recovery in its oilseeds and grains business.

 

"In China, the bird flu will affect meal consumption in the short term, but is not expected to have a long term effect. We remain optimistic about the long-term prospects of China," CEO Kuok Khoon Hong said in a statement.

 

The head of Japanese trading house Marubeni Corp predicted China's soy demand would rise, rather than fall. "The impact from bird flu will naturally depend on its duration, but for China we do not see it persisting long, so the impact will be fleeting," Fumiya Kokubu told reporters in Tokyo.

 

Marubeni, which reported a near-20% jump in full-year net profit, was told by Chinese regulators last month it could go ahead with its US$5.6 billion acquisition of US grain merchant Gavilon as long as the two businesses maintain separate trading units when selling soy to China. The tough conditions attached to China's approval of that deal underscore Beijing's anxiety over food security.

 

China, which gets more than 80% of its soy supplies on the global market, has booked 6.77 million tonnes of new US crop as of last week, down from 7.11 million tonnes during the same period last year, according to the USDA.