November 8, 2008

 

US soy finds opportunity in China's melamine scandal

US soy exporters may be getting a bump in business as China's melamine-tainted feed scandal has soy users looking for a safe, reliable supply, according to industry analysts.

 

The recent discovery of melamine in chicken eggs from China being sold in Hong Kong has triggered concern that the chemical may be present in a wide range of foods, such as farm-raised meats and fish.

 

At least four children died of kidney failure and 53,000 fell ill in China this year after drinking milk or consuming dairy products laced with melamine, which usually is used in making plastics and fertilisers, according to an Agence France Press report.

 

"It stands to reason that if the Chinese used melamine on a widespread basis that the only protein substitute would be soymeal, which could boost their demand," said Dan Basse, president of AgResource Co.

 

The USDA estimates China will import 360 million tonnes of soy in 2008-2009. The USDA in October cut US soy export projections by 30 million bushels to 1.02 billion bushels based on projected supply cuts and higher prices, but analysts expect a recent boom in US sales to China to drive up export estimates for the marketing year.

 

As of Oct. 30, China committed to purchase 280 million bushels of US soybean purchases, 54 million bushels ahead of its purchases at this time last year, said Bill Nelson, a grain analyst at Doane Agricultural Services.

 

"That's one of the best numbers ever," he said.

 

Bargain-basement ocean shipping rates that have made it cheaper to ship products from the Gulf of Mexico to Asia than down the Mississippi are certainly a major factor in China's recent purchasing decisions, analysts said.

 

"The spread is as wide as I've ever seen it between China's costly domestic and imported beans," Basse said.

 

But US exports to China are so brisk that "something's going on related to melamine" in addition to the profitability of importing beans, especially considering the record production China's supposedly expecting, Basse added.

 

The USDA will release a supply and demand report at 8:30 a.m. EST Monday that will shed more light on the situation.

 

Feed producers may have used melamine to falsely boost protein content, just as milk producers did in a scandal that devastated China's dairy industry, according to Zhang Zhongjun, program officer with the UN Food and Agricultural Organization. China's "continued presence in the market signifies it's certainly looking for outside sources of feed," said Arlan Suderman, Farm Futures market analyst.

 

China produces 46 percent of the world's pork and is growing its poultry industry, Suderman said, noting the substantial livestock and poultry feed demands the country must supply.

 

China's poultry consumption is projected to grow 8 percent over the next year, he added.

 

Past government policies have shown a willingness to import protein if there's not enough meal to support its livestock, Suderman said. And crush margins have never been better for those importing US soy to crush for meal, Basse added.