China could shun US, turn to Latin America for soy

Strong US soy export demand, which has been led by China, will ease during the Lunar New Year holidays and will continue to wane afterward if China turns its attention to South American inventories and if buying from other leading importers remains tepid.

 

The top five importers of US soy account for 84 percent of US export sales, said Joe Victor, analyst with Allendale Inc. Of the five, only China and Japan have higher purchases versus a year ago, up 21 percent and 6 percent respectively, he said.

 

If not for China, US soy exports would be minimal, analysts said.

 

Since Sept. 1, total US soy export commitments total 22.243 million tonnes, with China accounting for 12.733 million, or 57.2 percent, of the sales.

 

The US has seen a pullback in exports to some top importers due to the global recession, as importers are not buying on thoughts prices could go lower, said Dan Basse, president of the AgResource Co.

 

Consumer income is down during recessions and that results in less demand for animal protein such as milk, meat and eggs in developing countries. In turn, that will drop demand for soymeal and other feed rations, analysts said.

 

The recessionary slowdown is only part of the story, as increased global oilseed production in 2008 has provided alternatives to US soy.

 

The EU produced a record large rapeseed crop in 2008, allowing its member countries to utilise domestic supplies, particularly with diminished livestock numbers, said Basse.

 

In addition, Canada had a record canola crop in 2008 and demand from the biodiesel industry in general has slowed. That has reduced demand from other areas as well, Basse said.

 

One big question is whether the USDA has adjusted its 2008-09 export estimate for a recessionary economy, with major economic barometers reflecting economic turmoil. USDA in its Jan. 12 supply and demand report estimated US soybean exports for the 2008-09 marketing year at 1.1 billion bushels.

 

The global recession has reduced livestock numbers and in turn reduced meal consumption, lowering the demand for soy to crush into meal, said Joe Victor.

 

Outlooks suggesting an increase in US soy plantings in 2009 are also keeping importers from taking a hand-to-mouth approach in buying US soy.

 

US dependence on Chinese demand is raising doubts about the sustainability of the US export pace.

 

Typically, China's buying interest turns toward South America after the Lunar New Year, but whether that happens now depends a lot on Argentine crops that are suffering from drought conditions, said Victor.

 

Despite the historical norms of demand shifting toward the Southern Hemisphere, some analysts expect Chinese demand to continue, which will force the USDA to increase its export projection.

 

In the Jan. 12 supply and demand report, the USDA raised its soy export projection 50 million bushels to 1.1 billion.

 

"With South American production still unknown, I look for China to continue to source beans from the US after the holiday break," said Basse.

 

China's crushing margins are profitable and with their large poultry flocks, demand for soy to crush into meal to feed those birds is not expected to drop.

 

Based on China's program of building reserves, imported soy remain cheaper for crushers and that should keep US soy a primary source of origin in February and March, particularly with South American production unknown, Basse said.

 

Dry weather is stoking fears of major drought damage to the Argentine soy crop. The possible withholding of new-crop soy by Argentine farmers due to unhappiness with an export tax is another feature that could keep China's eye on US supplies, due to memories of last year's drawn-out farmers strike in Argentina.

 

Meanwhile, soy in Brazil have benefited from recent rains, but a drier trend for southern Brazil for most of the growing season has raised concerns about lower output as well.