May 19, 2014

Despite surging imports, results are bleak for soybean businesses in China, the world's largest importer of the crop.

Purchases of the crop rose 41% in the first four months of 2014 in China. However, demand for by-products like soymeal or cooking oil lagged behind, taking a toll on international trading companies.

Revenues of companies like Wilmar International Ltd. and Noble Group Ltd., who dominate soybean processing in China, are badly hurt. Their crush margins, which reflect the difference between the cost of the soybeans and the market price for soybean oil and soymeal, have moved sharply into the negative territory.

What is complicating trading houses effort to gauge demand levels is the use of soybeans and other commodities in China as collateral for loans, a practice driven by high interest rates and tight credit conditions in the country.

Chinese demand for soymeal has fallen in part due to falling pork prices. An outbreak of avian flu has also dampened demand for poultry feed.

In its first quarter results, Archer Daniels Midland Co. (ADM), one of the top soybean traders, brushed aside concerns over China's feed and livestock industry and said Chinese feed demand in the second half of the year looks solid.

Also, Bunge Ltd.'s chief executive Soren Schroder said he expects slowing shipments and recovering feed demand to lift prospects in the second quarter. The company swung to a loss in the first quarter in part because of China's temporarily depressed crushing environment.