Soybean Meal Prices Tentatively Stabilize and Improve, But the Breeding Industry Has Not Yet Substantially Recovered

Recently, driven by factors such as feed enterprises stocking up and a decline in oil mills' operating rates, soybean meal has shown a moderate upward trend. In addition, imported soybean arrivals at ports are lower than the same period last year, which may lead to a phased shortage of raw material supply at some oil mills after the holiday, and soybean meal market circulation may be tight in the short term. In view of this, soybean meal will still be dominated by a moderate rebound in the short term.

Soybean Arrivals at Ports Are Low

Data show that soybean arrivals at ports from February to March are generally low, with a total of about 8 million tons, significantly lower than the same period last year. Due to the relatively reduced soybean supply, some oil mills may experience a phased shortage of raw material supply after the holiday, and soybean meal market circulation may become tight.

Overall, the oils and fats sector remains relatively sluggish, which has kept oil mills' policy of supporting soybean meal unchanged. Once a phased shortage of soybean meal supply occurs, oil mills' willingness to hold prices will strengthen. In addition, generally speaking, feed enterprises will have a wave of stocking up after the holiday, which to a certain extent will help boost a moderate rebound in soybean meal.

Feed Enterprises Actively Stock Up Before the Holiday

As the Spring Festival approaches, feed enterprises are concentratedly replenishing stocks before the holiday, and their soybean meal inventories have increased significantly. Most manufacturers have stocked up until the end of this month, and a few large feed enterprises have even stocked up until mid-to-late March. As time goes on, oil mills will successively shut down for the holiday, and oil mills' operating rates will show a downward trend. A decline in oil mills' operating rates means a relatively reduced supply of soybean meal. Coupled with feed enterprises stocking up before the holiday, this has accelerated the destocking process of soybean meal at oil mills to some extent. Oil mills' soybean meal inventories have turned from rising to a slight decline, oil mills have a good shipping mentality, and their willingness to hold prices has strengthened.

The effective easing of inventory pressure has boosted both soybean meal futures and spot prices. Taking Zhangjiagang, Jiangsu as an example, as of February 10, the soybean meal spot price was 2960 yuan/ton. The improvement in soybean meal spot prices has also boosted futures to a certain extent.

Domestic Breeding Industry Has Not Substantially Recovered

Currently, feed enterprises stocking up has boosted a moderate rise in soybean meal prices, but the domestic pig breeding industry has not substantially recovered, and terminal demand has limited support for the feed market. Statistical data show that both pig inventories and breeding sow inventories are at relatively low levels. As of December 2014, pig inventories were 421.57 million head, a decrease of 9.92 million head from 431.49 million head in November 2014, and also a sharp decline of 35.74 million head from 457.31 million head in the same period of 2013. This means that the pig breeding industry's demand for feed raw materials will gradually decrease. In addition, the current pig-to-grain price ratio is 5.47, still below the break-even point and within the blue observation zone of the government's pig regulation warning, which may affect the enthusiasm for replenishing herds to a certain extent.

In December 2014, breeding sow inventories were 42.89 million head, a decrease of 790,000 head from 43.68 million head in November 2014, and also a sharp decline of 6.49 million head from 49.38 million head in December 2013. Breeding sow inventories to a certain extent represent the ability to supply piglets to the market, and a reduction in breeding sow inventories to a certain extent means a shrinking source of supply for pig inventories. In addition, the current national average price of piglets is 19.22 yuan/kg, and it is still in a downward channel. The oscillating decline in the national average price of piglets also largely confirms that farmers' willingness to replenish herds has declined, so piglet prices lack upward momentum. Indicators of the breeding market are currently operating at relatively low levels, which is not conducive to the breeding market's consumption of feed, and further not conducive to promoting the development of the feed raw material market.

Overall, the current soybean meal market shows a phased moderate rebound. But at the same time, because South American weather is generally good, the global supply and demand loosening pattern has not changed, and the rebound space for US soybeans is not large. From April to June, South American soybeans will be concentratedly listed. After low-cost South American soybeans successively arrive at domestic ports, pressure on the soybean meal market may expand again, and the extent of this round of soybean meal rebound will be limited.