May 16, 2013

 

China shows doubts over USDA soy trade estimates

 

 

Buoyed by the recent USDA's World Agricultural Supply and Demand Estimates (WASDE) report on soy imports, China stoked a soy market debate by estimating its imports of the oilseed next season at 66 million tonnes a record high, but well below the US forecast.

 

The China National Grain and Oils Information Centre (CNGOIC) crop bureau said that China's soy imports - the world's biggest, which expected to fall this season for the first time in nearly a decade - will rise some 7.0 million tonnes in 2013-14.

 

While taking them far above the current record of 59.2 million tonnes, imports at that level would be 3.0 million tonnes below the estimate that the USDA pencilled in on Friday (May 10), in its monthly WASDE report which gave the first estimates for world crop supply and demand next season.

 

The size of Chinese imports is viewed as a key influence on soy price potential, especially towards the end of the year when the US, which normally has a seasonal dominance in world exports, will face enhanced South American competition.

 

In Minneapolis, broker Benson Quinn Commodities termed the USDA forecasts for China soy as "data of contention", highlighting the potential hit to feed demand from the damage that the outbreak of H7N9 bird flu is doing to demand for chicken meat.

 

In London, Macquarie termed the 69 million-tonne import estimate as "very optimistic, given the fact underlying demand is being pressured by negative hog margins and some influence from the bird flu issues". The bank forecast Chinese soy imports of 63-65 million tonnes next season.

 

However, the USDA said that, while meat demand "may be dampened indefinitely by weak consumption for poultry", thanks to the bird flu epidemic, "some soy imports for China will also be used to restore stock levels".

 

Difficulties in sourcing soy in 2012-13, following disappointing harvests in both the US and South America, "have forced China's processors to dip into domestic inventories".

 

Furthermore, importers will be encouraged by weaker prices ahead, and the prospect of a lower domestic harvest, "as China's farmers are likely finding grains to be a more profitable alternative".

 

The USDA gained support from Standard Chartered analyst Abah Ofon, who said that he was "relatively bullish" on Chinese soy consumption. "Although recent policymaker attempts to limit wastefulness and concern over avian flu could dampen feed demand, domestic soy consumption remains strong," while inventories forecast for the end of 2012-13 "look low".

 

The USDA comments came in a follow-up to Friday's WASDE report in which it highlighted "formidable competition" to US soy exports this autumn from Brazilian supplies, which will remain unusually high so late in the year, buoyed by a strong harvest and initial logistical setbacks.

 

And Argentine soy exports could be ramping up then too, after a period of farmer withholding of crops, which represent a hedge against the tumbling Argentine peso.

 

"Although that harvest was two-thirds complete by early May, Argentine farmers have sold only as much as needed to pay expenses," the USDA said. "The country's plunging foreign currency reserves have persuaded many farmers that a devaluation of the peso is unavoidable."

 

As with Brazil, "the current delays in soy marketing would concentrate even more of the Argentine shipments into the final months of 2013 and head-to-head with the prime period for US exports".