December 1, 2014
China soy imports may slow down as domestic prices tumble
Falling soymeal prices in China are threatening to derail China's booming demand for US beans as crush margins have started turning negative after holding mostly positive since early September.
Fat soy processing margins and four-year low Chicago prices sparked a rush by Chinese buyers last month to snap up US cargoes for November-December shipment. But expectations of big arrivals are taking a toll on soymeal values in the country and dragging down crushing profits.
A slowdown in imports by China, which buys more than 60% of globally traded beans, could add to pressure on global prices that rallied to a four-month high earlier this month on the back of strong demand.
"China has definitely overdone, there's a huge volume of beans on its way," said a trading manager at a Singapore-based company which ships beans to China and owns processing plants.
"Soymeal prices in the Chinese market are falling and as a result crushing margins are turning flat and even negative in some cases."
Soymeal prices in China's Dalian region have dropped 6.7% since the start of last week. This has pushed crush margins into the red after being largely profitable since early September.
Chinese importers overbought at the end of last year, encouraged by higher processing margins but record shipments coupled with a slowdown in demand after an outbreak of bird flu, reduced demand and triggered defaults.
Traders said China is not yet in a similar situation, despite falling prices and the big arrivals.
Although soybean shipments are forecast to reach around 21 million tonnes in the November-January period, traders are seeing signs of a slowdown early next year as profit margins are squeezed.
China usually ships 5.5-6.0 million tonnes a month.
"If they priced soybeans at around $9.00 a bushel, the margin should be good but if they did not, giving the weakening domestic soymeal prices, we expect the margin will be negative if (Chicago) soy prices keep rising," said Li Lifeng, one analyst with an industry consulting firm, www.cofeed.com.