Domestic soybean market sees a turnaround, but soybean oil prices struggle to rebound
Imported soybeans become the star of sales
Since China began importing soybeans in 1995, import volumes have risen year after year, making China a veritable number one soybean importer in the world. It is understood that in 2014 China imported 71.4 million tons of soybeans for the whole year, up 12.7% year on year. From January to July this year, China imported a total of 44.66 million tons of soybeans, up 7.1% year on year. While imports kept climbing, international soybean prices kept falling in recent years. Taking the soybean transaction price on the Chicago Board of Trade on August 25 as an example, it fell by nearly 50% compared with the same period in 2012.
Clearly, against the backdrop of low prices and strong demand, imported soybeans flowed continuously into the domestic market and became the star of the market.
However, domestic homegrown soybeans were gradually squeezed out of the market, not only losing the “say” of being the mainstay, but even their value showed no sign of improvement.
Domestic soybean planting declines year after year
⟦NL> Because imported soybeans are cheap, edible oil companies with large usage, in order to reduce costs and secure a place in the domestic edible oil market, abandoned domestic soybeans one after another and switched to more affordable imported soybeans, causing domestic soybean sales to shrink. Hard to sell and unable to fetch a good price became the true portrayal of domestic soybeans in recent years. In contrast, in recent years the returns from planting corn and rice were relatively good, so soybean farmers gave up soybean planting one after another.
It is reported that Heilongjiang Province, as the main domestic soybean producing area, saw its planting area halve over the 8 years from 2005 to 2013. It is expected that this year the national soybean planting area will decrease by 13.4% year on year.
Favorable factors prompt prices to rebound
According to data monitored by the Beijing Dadi Yuquan Road grain and oil wholesale market, although both domestic soybean planting area and output declined, the wholesale price of domestic soybeans did not rise due to reduced supply over the past four years, and basically adjusted within a narrow range at the level of 5 yuan per kg. At the same time, in recent years international soybean prices overall showed a continuous downward trend, and the decline was relatively obvious, dealing a “fatal” blow to the domestic soybean market, which itself had no price advantage.
However, it is worth noting that domestic soybean prices have recently turned a corner and ushered in a glimmer of hope. At present, the average wholesale price of domestic soybeans sold on the market is 4.9 yuan per kg, up 0.23 yuan from the beginning of August, an increase of 4.93%. Although it looks like an increase of just over 0.2 yuan, for domestic soybeans that have long been weak and rarely had chances to rise, it is undoubtedly good news. There are two main factors for the rise: after nearly a year of consumption, the amount available for circulation in the market decreased, while there is still some time before the new season's soybeans are harvested and listed, and the gap between old and new crops pushed prices up; recently, relevant state departments strictly investigated the flow of imported genetically modified soybeans, and currently Shandong ports and others stopped the distribution trade of imported soybeans. For the domestic soybean market this is favorable news, and the market rebounded accordingly.
Future market may rise slightly
Regarding the future trend of soybeans, industry insiders believe that, on the one hand, compared with grain crops such as corn and rice, the planting benefit of soybeans is obviously lower, the overall planting area can only decrease and not increase, and the production situation remains unoptimistic. But in recent years, the reduction in domestic soybean supply has not directly pushed up its selling price. If the state further strengthens supervision over the flow of imported soybeans later, it will increase demand for domestic soybeans to a certain extent, thereby supporting a slight rebound in their prices.
Soybean oil: bearish factors make prices hard to improve
The depreciation of the renminbi that began on August 11 became a market hot spot, and recently it further intensified worries about the global economic outlook. Renminbi depreciation means the cost of China's imported soybeans will increase accordingly, creating hidden concerns in the market about soybean sales prospects.
In addition, the August supply and demand report released by the U.S. Department of Agriculture pointed out that U.S. soybean production for 2015/2016 is expected to be 3.916 billion bushels, higher than the July estimate. This month the United States will usher in the soybean harvest season, and if there is no abnormal weather, the overall production expectation is relatively optimistic. Under the double pressure of renminbi depreciation aggravating market concerns and the expected bumper harvest of U.S. soybeans, international soybean and soybean oil prices both fell in August. As of August 25, compared with the beginning of the month, the closing prices of international soybeans and soybean oil fell by 6% and 10% respectively. This phenomenon of a relatively short period and an obvious decline is bound to have a direct impact on the domestic soybean oil market.
In Beijing, some brands of soybean oil have recently begun to cut prices. Data from the Dadi Yuquan Road market show that compared with the beginning of August, the wholesale price of a certain brand of soybean oil produced in Beijing was 138 yuan per box (5L*4 barrels), down 2 yuan, a decrease of 1.43%. Through communication with wholesalers, soybean oil market conditions have been poor all year, so most merchants are not highly motivated to stock up, and overall inventory is not large. However, the price decline reduced the purchasing willingness of large oil users downstream. In order to benefit from the price drop, they generally adopted a buy-as-needed approach, which slowed down sales.
Market participants introduced that since 2011, the soybean oil market has been on a downward trend. Taking a certain brand of soybean oil with a relatively large market share as an example, its wholesale price fell from 218 yuan per box (5L*4 barrels) in August 2011 to the current 144 yuan, a drop of 74 yuan, or more than 30%. The main reason is that the strengthening of the U.S. dollar led to lower prices of international bulk commodities priced in U.S. dollars. At the same time, in recent years, the United States, Brazil and Argentina, the world's three major soybean producing and exporting countries, all had overall bumper harvests, and relatively ample global soybean supply also created conditions for the decline in soybean and soybean oil prices.
Future market may see a slight decline
Regarding the future market trend, industry insiders believe that, from the external environment, the United States, as the world's major soybean producing and exporting country, will usher in the soybean harvest season this month, and the fundamentals of optimistic bumper harvest expectations will constitute a certain bearish impact on the market. At the same time, the continued decline in international crude oil prices also suppresses the soybean oil market; from internal factors, since the beginning of this year China's soybean imports have continued to grow, and the pressure of sufficient domestic soybean inventory still cannot be underestimated. In addition, since the second quarter, domestic pork prices have continued to rise, and better breeding profits may stimulate farmers to expand scale, and the consumer demand for feed such as soybean meal will also increase accordingly. If the soybean meal market improves, it may increase the processing capacity of edible oil companies, and an increase in soybean oil supply will inevitably restrain its price rebound. Overall, it is expected that in the short term soybean oil wholesale prices will still decline slightly.