Soybean meal market remains sluggish, still a long way from emerging from the cold winter

Since January, due to the favorable bumper harvest prospects in South American soybean producing regions, global soybean supply pressure has increased significantly. In mid-January, the main US soybean contract fell below the 1000 cents/bushel integer mark and continued to decline. It is expected that US soybeans will continue to test the 900 cents/bushel support level in the future. With US soybeans remaining weak, Dalian soybean meal can hardly stay unaffected and will continue to follow US soybeans downward.

Slow shipments, oil mills' inventories surge

Due to the bumper US soybean harvest, soybean imports surged this year, and domestic supply pressure continued to increase. In December 2014, soybean imports reached 8.5268 million tons, setting a record for the largest single-month import volume in history, up 15.19% year-on-year. In addition, according to Tianxia Liangcang estimates, soybean imports in February 2015 may reach 7 million tons, higher than the level in the same period last year.

Due to the concentrated arrival of soybeans at ports, the operating rate of domestic oil mills remained at a relatively high level. Overall, it is estimated that total soybean crushing in January will reach 7.2 million tons, significantly higher than the 6.01 million tons of soybean crushing in January last year, and setting a new high for the same period in previous years. Moreover, because traders and feed mills are bearish on the outlook, their enthusiasm for picking up goods is not high, and transportation in many regions is hampered by snowy weather, making the pickup pace of soybean meal from oil mills even slower. Therefore, soybean meal inventories continued to rise. As of January 25, the total soybean meal inventory of oil mills in major coastal regions of China was 810,700 tons, an increase of 228,700 tons from 582,000 tons in the same period last year, a rise of 39.29%. Severe soybean meal inventory buildup led oil mills to become more willing to cut prices to ship goods. Recently, spot soybean meal prices continued to fall. In January, the spot soybean meal price in Zhangjiagang, the benchmark delivery location, fell from 3,240 yuan/ton to 3,040 yuan/ton, a decline of 200 yuan/ton, or 6.17%.

Sluggish demand, weak soybean meal stockpiling

In previous years, this period was the peak stockpiling season for feed enterprises, but this year's situation is quite different. As the Lunar New Year approaches, pig prices are still declining. As of the week of January 21, the average price of live pigs across all provinces nationwide was 13.41 yuan/kg, down 0.17 yuan/kg from the same period last year, a decline of 1%. Losses in pig farming expanded to 75.9 yuan/head. Severe farming losses dealt a heavy blow to farmers' enthusiasm for restocking. Coupled with year-end slaughter of live pigs, the pig inventory, already at a historically low level, continued to decline. December pig inventory was 422 million head, down 2.3% month-on-month and down 7.8% year-on-year. The inventory of breeding sows was 42.89 million head, down 1.8% month-on-month and down 13.1% year-on-year. Moreover, breeding sow inventory has declined for 16 consecutive months and is currently at a historically low level, which means that the growth rate of pig inventory next year will also be limited. It is expected that pig farming demand for the entire year of 2015 will remain in a relatively sluggish state.

In addition, the H7N9 epidemic continues at present, live poultry market controls in the south have been strengthened, poultry consumption is light, and avian influenza continues to affect poultry restocking. Meanwhile, aquaculture is currently in the off-season, the domestic farming industry is sluggish, end-user demand is weak, and feed enterprises are generally bearish on the outlook. Pre-holiday stockpiling demand is not as strong as in previous years. Up to now, large-scale pre-holiday stockpiling has still not been seen. Most still buy as needed and mainly consume inventories on hand. Lacking demand support, it is hard to say soybean meal prices have bottomed out.

Overall, expectations for a bumper harvest in South America are strong, global soybean production will hit a new record high, and US soybean demand in the future will gradually weaken. It is expected that US soybeans will continue to decline. Meanwhile, China's domestic soybean meal market is oversupplied, and there is still room for soybean meal to fall in the medium to long term. However, it is worth noting that as the Spring Festival approaches, feed mills may more or less do some pre-holiday stockpiling, but the stockpiling volume is expected to be small. In addition, the recent sharp depreciation of the RMB exchange rate has meant that soybean import costs have not fallen along with the US market, and oil mills' willingness to sell off on the futures market has weakened. It is expected that soybean meal prices will have some support in the short term, but based on bearish fundamentals, a short-term stabilization of soybean meal prices will still not change the medium-term weakness.