March 17, 2004

Soymeal Markets Bullish On Low Supply, Increasing Demand

Soymeal prices in China are steadily increasing as a result of tight supply of domestic and foreign soybeans, coupled with increasing demand.
 
Chinese soybean crushers hiked soymeal offers this week, after testing the water in the previous week, local traders said on Tuesday.
 
In the week ended Tuesday, crushers in both northeastern and coastal regions have raised the ex-factory prices of soymeal by as much as RMB150-250 ($1=RMB8.277) a metric ton, quoting around RMB3,000-3,450 in northeastern and eastern China.
 
"Crushers are very bullish on soymeal markets now, as the crush operation is likely to stay relatively low in the coming months until May, and the cost of imported soybeans is soaring now," a trader from China National Cereals Oils and Foodstuff Import & Export Corp., or Cofco, said on Tuesday.
 
Chicago Board of Trade soybean prices shot to 15 1/2-year highs on lingering concerns about South America's soybean crop. Nearby CBOT May soybeans on Monday closed up 22 1/2 cents at $9.78 1/4 a bushel, after setting a top of $9.81 during the session.
 
Soybean and soymeal futures in Dalian Commodity Exchange also rose to contract highs this week, buoyed by the stronger CBOT soybean complex and the prospect of higher demand and supply woes, traders said.
 
Chinese soymeal markets tentatively rebounded after the bird flu outbreaks were finally controlled in late February. Feedstuff producers, who mostly kept to a hand-to-mouth buying strategy and held their stocks at a minimal level, had little choice but accept the firmer offers of crushers.
 
"The feedstuff producers are not comfortable with the higher soymeal prices, but what else could they buy to substitute soymeal? They waited and waited, but finally, had to jump into the bull's wagon and increase the coverage," said a market analyst from a local brokerage house in Beijing Tuesday.
 
On Tuesday, Beijing declared an early victory on bird flu, saying it had "stamped out" all of its known cases. "As of Tuesday, all the 49 confirmed cases of bird flu have been stamped out," said Jia Youling, the spokesman for the Ministry of Agriculture's anti-bird flu team at a news conference in Beijing.
 
China destroyed about nine million chickens and other poultry in an effort to stop the spread of the disease.
 
In February, the average wholesale price of live chickens in China was 11% lower than the prices in January, and the prices of eggs fell by 5.8% on month, due to the impact of bird flu.
 
Widespread fears over bird flu in the past month have deterred many producers from building up poultry flocks, creating pent-up demand for poultry and feed products after the concerns over the disease eased.
 
But feedstuff producers, who just shook off the specter of bird flu, are now facing another headache - the limited soymeal supplies and firmer prices, traders said.
 
The soaring cost of soybeans, concerns over supply shortages and weaker soyoil markets have left crushers with few options but to keep the soymeal prices firm.
 
China's soyoil markets have fallen in the past month, due to heavy arrivals of imported soyoil in the first quarter of 2004.
 
During January to March, China is expected to receive around 800,000 tons of soyoil, most of it from South America.
 
The prices of second grade soyoil in Shandong were quoted as low as RMB7,230/ton, compared with RMB7,280/ton one week ago. Since February, China's soybean buyers have slowed bookings of foreign soybeans, due to concerns about higher cost of U.S. soybeans and sluggish demand from the livestock and feedstuff industry.
 
Chinese buyers "washed out," or cancelled, around 30 cargoes of U.S. soybeans in the first two months of 2004, as the crush margin was squeezed by the weaker soymeal demand and firm U.S. soybean prices.
 
Until early March, crushers using imported soybeans suffered a loss of RMB100-140/ton for processing one ton of soybeans.
 
"Many crushers were eyeing the cheaper South American crops, but now they have come to the realization that South American crops might come too late," a trader from a soybean trading company in Harbin, Heilongjiang said Tuesday.
 
Many traders believed that Chinese soybean supplies, both locally produced and imported, will dwindle to the lowest levels in more than a year by the end of April because of sharply lower arrivals of imported soybeans during March and April.
 
In February, China's soybean imports were pegged at 1.16 million tons, compared with 731,461 tons imported in February 2003, official customs data shows. But in March and April, fewer than 2.00 million tons of imported soybeans are expected to arrive in China, less than half of the 4.07 million tons of soybeans imported in the same period of last year.
 
China's soymeal markets could stay firm well into April, the crush is likely to stay low, the analyst said. "If South American soybean crops continue to shrink, and if Chinese buyers turn to U.S. Pacific Northwest for U.S. beans, or if the arrivals of South American crops were delayed by GMO (genetically modified organism) policy transitions, China's soybean supply would be critical in April," said the market analyst in Beijing.
 
All of such uncertainties could lead to higher costs of raw materials and force the crushers to cut down their operations, at a time when the feedstuff producers would be hunger for more feed ingredients, added the analyst.