Post’s August forecast for MY14/15 total oilseed production is 56.8 million tons, down by 3.3 percent from an estimated 58.7 million tons in MY13/14. Notwithstanding reports of a moderate recovery of the soybean planted area in Heilongjiang Province, the recovery is expected to have limited impact on total domestic oilseed production. In addition, despite a short drop in oilseed product consumption in MY13/14, total oilseed demand maintains a growing trend, particularly for soybeans, with total imports estimated at 69 million tons in MY13/14 and 72 million tons in MY14/15. 

MY14/15 domestic oilseed production slightly down

Post August forecast for MY14/15 total domestic oilseed production stands at 56.8 million tons, down 3.3 percent from the previous year, due to lower cottonseed production.

Soybeanproduction is estimated at 12 million tons based on a planted area of 6.75MHa, a 1.6 percent drop from the estimated production in the previous year. In late August, the Heilongjiang Provincial Agriculture Commission reported that soybean planted area in the province recovered for the first time since 2009. The recovery is stated to be in response to a government policy announced before the sowing season to subsidize soybean farmers based on a higher “target price of RMB4,800/ton.” This target price is RMB200/ton higher than the average price of the previous season. In order to implement this policy, China’s Ministry of Agriculture (MOA) initiated a program to monitor the marketing price for soybeans in the four Northeast provinces. While the monitoring program is scheduled to start from September 1 and last until the end of November, details on its implementation have not been published. Additionally, in MY14/15 some farmers in part of Heilongjiang switched from planting corn to soybeans as a flood in the autumn of 2013 reduced corn quality and the price in MY13/14, and further impacted corn planting in MY14/15. As of late August, soybean growth in the four Northeast provinces was rated as “Good” due to adequate moisture and sunshine.

Rapeseedproduction is forecast at 14.1 million tons, unchanged from Post’s July forecast. An august report from Hubei Province shows MY14/15 rapeseed production increased by 2.7 percent to 2.57 million tons, based on a 1.8 percent increase in planted area and a 1 percent gain in yield over the previous year.

According to the State Grain Administration, as of August 5, total purchased rapeseed for state reserves stood at 2.98 million tons, down by 2.4 million tons compared to the same time in the previous year. China National Grain and Oils Information Center (CNGOIC) estimated total rapeseed purchase for state reserves will fall significantly from 6.16 million tons in the previous year to about 3.5 million tons. CNGOIC stipulates that a smaller production than the official estimate and the government’s more strict purchase policy reduced the volume for state reserves. Strong imports of rapeseed in the first months of MY13/14 also contributed to a smaller domestic production.

However, on July 16, China’s National Statistics Bureau (NSB) estimated that the 2014 summer rapeseed production hit a record at 13.76 million tons, up 2.5 percent over the previous year. A CNGOIC report dated August 14 indicated that MY14/15 rapeseed production (summer crop) stood at 13.6 million tons. As such, total rapeseed production is likely to be 14.5 million tons if the autumn crop (generally around 1 million tons yearly) is included. 

Similar to soybeans a “direct subsidy to rapeseed farmers” policy is likely to be enforced in 2015. The Hubei Provincial Office for Rapeseed Production said the central government plans to enforce “direct subsidy to rapeseed farmers based on a target price” policy in Hubei and other major rapeseed-producing regions in 2015. Currently, the Office is doing a production cost survey for MOA. This policy, if implemented, is expected to encourage rapeseed planting and have a positive impact on rapeseed planting area in the future. However, this policy is not expected to have an impact on other crops. 

Post’s Peanutproduction is forecasted at 17 million tons for MY14/15. Higher returns on peanut sales have driven farmers to expand the peanut planting area particularly in Henan and Shandong Provinces. However, according to CNGOIC’s July report latest estimate MY14/15 peanut production stands at 16.5 million tons, as they foresee a slight decrease in the expected peanut planted area. 

Cotton seedproduction for MY14/15 is 11.3 million tons, down 1.48 million tons from 12.78 million tons in the previous year, due to lower expectations for cotton planted area. The August news from China’s industry sources appears to support a smaller than previously expected cotton production in MY14/15, however, its impact on total oilseed supply and trade remains limited. 

Protein meal consumption is recovering 

According to the China Feed Industry Association, total feed production was 83 million tons, down 3 percent compared to the same time in 2013. Protein meal consumption has been recovering since July in response to the usual rising demand for animal products preceding the upcoming holiday season. Additionally, should there be no solution reached between China and the United States, China’s restriction on imports of DDGS enforced in later July is expected to cut DDGS imports by about 2 million tons. This will likely encourage China’s feed sector to use more soybean meal. 

China’s official survey shows that the national average price for live hogs in mid-August was RMB14.78/Kg, increasing for seven consecutive weeks. Although the price ratio between pork and grain in mid-August stood at 5.64 to 1, lingering below the breakeven point for past seven months, most industry insiders believe pork prices are recovering and profit for swine farming will be positive beginning in the fourth quarter (with mid-autumn and national day vacation). 

Another leading industry survey showed the price ratio between pork and grain reached 5.8 to 1 on August 20, closer to the breakeven point ratio of 6 to 1. Pork price averaged at RMB15.2/Kg on August 20, up 20 percent from the average price in early July. 

According to MOA, total cultured aquatic production in the first half of 2014 increased in the 20 major aquaculture-producing provinces by 4.43 percent to 20.3 million tons. 

Currently, feed production and consumption continue to recover and boost protein meal demand. 

Selling of soybean reserves met food demand 

The government’s sale of soybean reserves continued with traders purchasing lower volumes. As of August 19, the government offered more than 5.2 million tons soybean reserve at open-auctions since mid –May. Both the purchased volume and the percentage of total offered declined since June as the demand for food use was by the recent soybean reserves sales. Meanwhile, crushing margins for these soybeans continue to be negative. Also as of August 19, CNGOIC estimated that the soybean reserves from the 2010 crop sold out while the remaining stocks from the 2011 crop are estimated at more than 2 million ton. 

Trade 

- MY13/14 soybean imports expected to hit record 69 million tons 

Post estimates China’s soybean imports for MY13/14 at69 million tons, up from the 68 million tons in previous report, and forecasts MY14/15 imports at 72 million tons. The highest in last six marketing years. Based on Global Trade Atlas (GTA) statistics, total soybean imports for the first three quarters of MY13/14 hit 51.83 million tons, up 24.6 percent over the same period inMY12/13. Industry sources indicate imports in July hit 7.47 million tons. CNGOIC's mid-August report adjusted MY13/14 soybean imports to 70 million tons, and forecasts MY14/15 soybean imports at 73 million tons. CNGOIC attributed the MY13/14 high import growth to strong consumption demand for protein meal as a lower supply of domestic soybeans for crushing was unable to satisfy a large crushing capacity. Additionally, industry sources reported soybean demand is also driven by China’s feed sector increased use of extruded whole soybean meal. 

- Rapeseed imports surge 

Along with the implementation of the government’s plan to purchase 5 million tons of MY14/15 rapeseed at a floor price ofRMB5,100/ton, rapeseed imports remained dynamic in the first nine months of MY13/14. The total volume of rapeseed imports reached3.84 million tons, up 43.7 percent over the previous year. May imports hit a record 651,000 tons while June imports dropped to 385,000 tons. In its August report, CNGOIC estimated MY13/14 rapeseed imports at 4.35 million tons and MY14/15 imports to increase slightly to 4.5 million tons. High imports reflect lower domestic production and a favorable world price. Import price (including duty) is expected at RMB3,450/ton, significantly lower than the domestic price. 

The high rapeseed imports also indicate Chinese traders’ preference for oilseed imports to meet the demand created by a larger domestic crushing capacity. This preference negatively impacted imports of rapeseed oil which stood at 748,000 tons in the first nine months of MY13/14, down 35 percent from the previous year