Rising Domestic Demand for Soybean Meal in China May Cause Exports to Decline in the Second Half

Traders and analysts say that China's soybean meal exports in the first half of this year tripled compared with the same period a year earlier, but as domestic soybean crushing margins improve and domestic soybean meal demand rises, China's soybean meal export supply may decrease.

Analysts say that reduced Chinese soybean meal exports will allow traditional exporting countries such as Argentina and Brazil to regain market share, while also boosting international soybean meal prices. A Singapore trader said that as far as soybean meal exports are concerned, China's exports have already peaked, and exports are expected to slow starting next month.

Chinese customs data show that in the first half of 2014 China's soybean meal exports were 1.36 million tons, double the same period a year earlier, with the year-on-year increase in May alone exceeding 4 times. Japan, South Korea, Vietnam, Indonesia and Malaysia accounted for most of China's soybean meal exports, and China also exported some soybean meal to Europe.

The surge in China's soybean meal exports was mainly due to China's massive soybean imports and weak domestic soybean meal demand.

In recent months China's soybean imports have been at the highest level for the same period in history. In the first half of this year China's soybean imports were 34.2 million tons, up 24.4% year on year. At the same time, affected by slowing economic growth and declining meat demand, domestic soybean meal demand decreased, leaving crushers with large supplies of soybean meal.

But traders say the fundamentals of the soybean meal market have now changed. First, soybean crushing margins have begun to improve, with some crushers' margins reaching as high as 10 USD per ton, compared with a loss of 80 USD per ton at the start of the year.

Analysts say that in the third quarter of this year soybean crushing margins will rise slightly, because as the holiday approaches and soybean prices have recently fallen, demand will show a seasonal growth trend.

A Singapore trader said that when Chinese soybean meal was the cheapest supply, large volumes of cargo were exported to Southeast Asia, but now Argentine soybean meal export prices are more competitive. Last week a Thai feed processor bought 150,000 tons of soybean meal from South America at 500 USD to 505 USD per ton CIF, with shipment scheduled for December 2014 to February 2015. By comparison, Chinese soybean meal was quoted at 570 USD per ton, CIF Southeast Asia. Indian soybean meal for nearby shipment was quoted at 610 USD per ton, FOB.

Over the past 3 months, soybean meal futures prices on the Chicago Board of Trade (CBOT) have fallen by more than 20%, while soybean prices fell by nearly 20% over the same period. As this year's US soybean production is expected to hit a record high, further increasing global soybean supply, soybean meal prices may still fall further. Over the same period, soybean meal futures prices on the Dalian Commodity Exchange fell by only 8%.

Traders pointed out that given price competitiveness, Brazil and Argentina will dominate the Asian soybean meal market in the next 2 months. Asia imports about 18 million tons of soybean meal each year, accounting for about 30% of global trade. But given logistics advantages, China will continue to export soybean meal to Japan. Traders say China will remain a soybean meal exporter to Japan, because Japanese buyers usually prefer to buy only 2,000 tons of soybean meal at a time.