Soybean meal market faces pullback pressure after weather-driven speculation
In the past two months, soybean meal futures contracts have experienced a sharp decline followed by a rapid rebound, and the current price is already close to the high point at the start of the decline. Does this mean the soybean meal market has already reversed?
First, let us analyze the reasons for the earlier decline in soybean meal: First, sluggish domestic demand for soybean meal led to a price drop. Weak demand in the breeding industry constrained soybean meal consumption. China's hog inventory and breeding sow inventory fell sharply year on year; prices of meat, eggs and poultry were sluggish, and breeding losses were severe; demand in aquaculture slowed, constraining demand for protein meal. Second, soybean meal supply increased greatly, spot prices fell sharply, and some basis contracts faced default risk, leading to panic selling.
Now let us look at the reasons for the rapid rise in soybean meal. The author believes that the rise in soybean meal came partly from a price return after the earlier excessive decline, and partly from speculation driven by concerns over U.S. soybean planted area and good-to-excellent ratings caused by heavy rain in the main U.S. soybean producing areas. The planted area data and weekly soybean good-to-excellent ratings released by the U.S. Department of Agriculture on June 30 both confirmed market concerns about U.S. soybean planting. These data will also support U.S. soybean futures at high levels in the short term, which will greatly raise the cost of China's imported soybeans and force oil mills to passively raise the prices of soybean meal and soybean oil.
But in the short term, speculation over the impact of severe weather on planting may cool somewhat, and the loose fundamentals will bring great pressure on soybean meal prices.
From the perspective of soybean meal supply, global soybean supply is ample. After U.S. soybeans hit a record high last year, soybean output in Argentina and Brazil also hit record highs, which will suppress legume prices in the medium and long term. Domestically, China's soybean imports in June may reach 8.53 million tonnes, and 8.0 million tonnes in July, so soybean supply is very ample; at present, the operating rate of domestic oil mills remains at an ultra-high level of about 54%, and soybean meal supply has remained high recently. The volume of domestic rapeseed meal and imported DDGS remains high, suppressing vegetable protein prices.
On the demand side, although the hog breeding industry currently shows restocking demand, a real boost to soybean meal consumption may have to wait until hog inventory data stop falling and rebound before it can be confirmed. The meat, egg and poultry breeding industry remains sluggish. Due to excess supply and demand, prices of meat poultry and eggs fell sharply earlier, severely hurting breeding enterprises' enthusiasm for restocking. In aquaculture, because excess supply and demand last year led to a sharp price drop, pond stock levels in the south are relatively high this year, constraining the release of fry. Recently, rainfall has been excessive, reducing feed application in ponds, which is bearish for meal consumption. Later, as large amounts of overwintering fish are sold, demand for protein meal from newly released fry may fall sharply, so demand for protein meal from aquaculture later is also worrying.
Based on the information on supply and demand, the author believes that soybean meal supply and demand will remain loose, and after the positive impact of heavy rain in the United States is fully priced in, soybean meal prices will return to fundamentals in the short term and may see a volatile correction.