Heavy supply pressure on agricultural products, future trends may diverge
Since March, the agricultural products index has fallen all the way, stabilizing and rebounding in the past two trading days. Apart from corn and corn starch futures, which rose successively due to stockpiling factors, soybeans, meal, and soft commodities such as cotton and white sugar all without exception showed successive declines, but in recent days they have begun to show signs of stabilizing. Recently, relevant figures stated that the price gap between domestic and international bulk agricultural products is continuously widening, which favors imports and disadvantages exports, while domestic grain storage capacity is tight, becoming an important factor suppressing domestic agricultural product prices.
Agricultural product prices face supply-side pressure
The recently published "Statistical Communique on the 2014 National Economic and Social Development" shows that in 2014 China's grain harvest was again bumper, achieving an "eleventh consecutive increase." Annual grain output was 607.1 million tons, an increase of 5.16 million tons over the previous year, a rise of 0.9%.
Driven by the wide price gap between domestic and international agricultural products and the pressure of successive bumper harvests at home, the domestic agricultural product market has seen increased imports and difficult sales, with large quantities of agricultural goods entering the state reserve system, and changes in inventories have also become an important factor affecting current agricultural product prices.
Industry insiders believe that China should limit annual grain imports to no more than 11 million tons, which is about 43% less than the 19.3 million tons imported in 2014.
Under this situation, markets closely linked to the international market, such as soybeans, oils and fats, and raw sugar, have attracted much attention. At present, the main problems facing such markets are that the soybean market is highly open, the comparative benefit of domestic soybean planting is low, and the soybean planting area is continuously shrinking; sugar import prices are too low and prices continue to fall, causing sugar enterprises to suffer comprehensive losses and sugarcane farmers' incomes to decline. Is there hope that these situations will improve in 2015?
Market trading shows that entering March, the soybean market experienced successive declines of varying degrees. Zhao Yan, research director of the agricultural products department of Everbright Futures Research Institute, said that after entering March, as the impact of strike activity in Brazil gradually eased, CBOT soybean prices once again fluctuated and fell, driving domestic soybeans to follow the board down. At the same time, macroeconomic bearish factors such as the continuous rise of the US dollar and the continued weakness of crude oil also weighed on domestic and international markets. After the Chinese New Year, the rebound in the domestic soybean market that followed the board also temporarily came to an end.
On the evening of March 10, the US Department of Agriculture released a neutral-to-bearish March monthly supply and demand report, once again confirming the loose supply pattern for US and global soybeans.
Regarding the recent consolidation in the oils and fats market, Fangzheng Mid-Term researcher Yang Lina believes that both the US Department of Agriculture supply and demand report and Malaysia's monthly production and sales data disappointed the market, and combined with the strong rebound of the US dollar and the pullback in crude oil, it is difficult to provide strong support for oils and fats that have been falling continuously.
Soybeans trend downward
Regarding the future of agricultural products, analysts pointed out that close attention still needs to be paid to domestic and international market developments. Yang Lina said that later the focus of the soybean market may need to shift to forecasts of new-season US soybean planting area, South American logistics and market launch conditions, the recovery of Malaysian palm oil production, and demand improvement. "If there is no substantial improvement in end-user demand for oils and fats, and compared with meal the change in demand cannot be reflected, then the low-level consolidation trend of soybean oil and palm oil is unlikely to change substantially."
Li Zhenqiang, an agricultural products researcher at Luzheng Futures, also pointed out that at present inventories in the United States, Brazil, and Argentina in the international market are all at high levels, while domestic demand is there for all to see and will remain weak in the future. Overall, the supply and demand pattern has still not changed, and the market will continue its bearish logic.
"Under the pattern of abundant global supply, as record South American soybean production comes to market in concentrated fashion after April, pressure on domestic and international markets will again be fully reflected." Zhao Yan said.