China’s Rising Crush Capacity Portends Stronger Oilseed Imports

The widening gap between China’s crush capacity and current use reflects investors’ confidence in the potential demand for protein meal and vegetable oil. It also implies that oilseed imports, particularly soybeans, could be larger as crushing plants would attempt to optimize their operations.

The crush sector has been expanding almost entirely on imported soybeans, since much of domestic crop is used for food or purchased by the State Reserve. Rising feed production and the greater incorporation of higher-protein ingredients in feed rations have further stimulated expansion. Meanwhile, demand for vegetable oil in food remains insatiable, spurred by steady economic growth, rising incomes, and changing tastes.

With the current forecast of record exportable supplies of soybeans in South America, China could secure the supplies necessary to utilize that additional capacity. However, given that the value in crushing lies primarily with the meal, stronger imports and potential profits would largely depend on the continued strength of demand for meal in the domestic market.

Argentine Soybean Stocks to Hit Unprecedented Levels

Argentine soybean producers continue to build stocks, limiting sales only to amounts necessary to meet current expenses. This has pushed March 2014 carryover to a record of more than 9 million tons. Unless a mechanism becomes available for producers to convert soybeans into assets that can retain their value in the current inflationary environment, limited producer selling is likely to continue.

The absence of large commercial sales has been one of the contributing factors in keeping soybean and meal prices above earlier forecasts. However, as stocks climb, the potential grows for producers to possibly flood the market with soybeans if or when market conditions improve.

OVERVIEW

Global soybean production is up with larger crops in Brazil and Paraguay more than offsetting a reduction in Argentina. Soybean trade is changed marginally as larger exports by the United States, Brazil, and Paraguay backfill an Argentine reduction. While the global market has abundant supplies, U.S. supplies remain tight driven by stronger demand from overseas and domestic crushers.
The season average U.S. farm price is raised.

SOYBEAN PRICES

U.S. export bids, FOB Gulf, in January averaged $525 per ton, slightly lower than last month influenced by prospects for record crops in South America. However, tight U.S. domestic supplies continue to support prices.

As of the week ending Jan 30, U.S. soybean commitments (outstanding sales plus accumulated exports) to China totaled 27.7 million tons compared to 20.9 million a year ago. Total commitments to the world are 43.0 million tons, compared to 34.1 million for the same period last year.

2013/14 TRADE OUTLOOK

• United States

o Soybean exports are up 406,000 tons to 41.1 million on record large sales and shipments to-date, particularly to China. Soybean imports are up 137,000 tons to 817,000 on projected higher imports from Canada.

o Soybean meal exports are up 181,000 tons to 9.9 million reflecting unusually strong foreign demand and lagging Argentine exports.

o Rapeseed imports are raised 125,000 tons to 725,000 on stronger demand for crush.

o Rapeseed oil imports are down 125,000 tons to1.5 million reflecting larger production.

• Argentina

o Soybean exports are slashed 1.7 million tons to 8.0 million on a reduced crop and slower sales to date.

o Soybean meal exports are cut 1.6 million tons to 27.3 million on reduced crush.

o Sunflower seed oil exports are down 100,000 tons to 620,000 on reduced crush with a smaller crop.

• Brazil

o Soybean exports are up 1.0 million tons to 45.0 million supported by a larger crop and improved competitiveness.

o Soybean meal exports are up 200,000 tons to 14.0 million boosted by improved competitiveness.

• China’s rapeseed oil imports are up 200,000 tons to 1.3 million to reflect strong shipments by Canada.

• European Union’s soybean meal imports are cut 1.5 million tons to 19.1 million on reduced exportable supplies in Argentina