Stocks Shrink as China’s Veg Oil Complex Changes

China is the world’s leading consumer of vegetable oil and the second-largest producer after Indonesia. Amidst import challenges, production shifts, and shrinking stocks, the vegetable oil complex in China is changing. 

Soybean oil accounts for more than 40 percent of oil consumption in China and the country relies heavily on imported soybeans to crush. On average, nearly three-quarters of China’s soybean supply is imported, and 70 percent is crushed. However, this past marketing year (Oct/Sept 2018/19), China’s soybean supply dropped nearly 8 million tons from 2017/18, after consistent growth, resulting in reduced oil production. 

Rapeseed is also a major contributor to vegetable oil use in China, and the country relies on its domestic production for oil. However, rapeseed production declined by nearly 8 percent from 2014/15 to 2018/19 causing China to double imports of rapeseed oil over the same time period. China also imports rapeseed to crush for oil; however, imports are down more than 1 million tons from 2017/18 due to trade tensions with Canada. Ironically, China is importing less Canadian rapeseed, but importing more rapeseed oil and meal from Canada. 

China’s imports of vegetable oil are increasing overall. Higher palm oil imports are replacing some of the “lost” soy oil; however, vegetable oil stocks continue to decline. For example, vegetable oil stocks are at a 4-year low as of 2018/19 and with an expected 2-percent growth in consumption are forecast to decline further. From 2015/16 to 2019/20, stocks are forecast to drop by a whopping 70 percent driven mostly by rapeseed oil. As domestic oil production remains flat and stocks shrink, imports are likely to become even more critical to China’s vegetable oil supply.

PROJECTION FOR 2019/20 

Global 2019/20 oilseed production is forecast at 571.3 million tons, down 3.6 million tons from October due mostly to lower soybean and cottonseed production. Soybean production is projected at 336.6 million tons, down 2.4 million to a 4-year low due to lower production in the United States, India, and Canada. Oilseed crush is down 3.6 million to 494.7 million tons. Ending stocks are increased marginally from the October forecast mainly due to higher soybean stocks in Brazil and the United States partially offset by a 1.1-million-ton reduction in Argentina. Protein meal production is down 2.6 million tons from last month to 337.8 million tons primarily on lower soybean meal production in India. Vegetable oil production declines 1.0 million tons from October mostly due to lower production of soybean, rapeseed, and palm oil. Oil stocks are lowered 570,000 to 19.1 million tons, the lowest in 5 years. The projected U.S. season-average farm price for soybeans is unchanged at $9.00 per bushel.

OVERVIEW FOR 2018/19 

Global 2018/19 oilseed production is down 720,000 tons to 596.7 million due to reductions in India soybeans and sunflowerseed. Most trade data was finalized this month. Oilseed exports rose 520,000 to 171.2 million and imports declined 660,000 to 166.1 million tons mainly due to changes in soybean trade. Protein meal production is down nearly 1.0 million tons on lower soybean meal in Argentina, India, and the United States. Meal imports and exports are up on strengthened sunflowerseed meal from Ukraine, Argentina, and Russia to China and the European Union. Vegetable oil production is reduced 450,000 to 203.2 million tons on lower soybean oil production mostly in Argentina. Oil trade is mainly unchanged. Vegetable oil stocks are reduced slightly to 21.1 million tons. The U.S. season-average farm price for soybeans is unchanged at $8.48 per bushel.

EXPORT PRICES 

U.S. Gulf FOB soybean export bids in October averaged $358/ton, up $22 from September. Brazil Paranagua averaged $372/ton, up $10 from September. Argentina Up River FOB averaged $354/ton, up $6. U.S. soybean meal export bids in October averaged $339/ton, up $9 from September. Brazil Paranagua FOB averaged $312/ton, up $9 from September, and Argentina Up River FOB averaged $309/ton, up $10. U.S. Gulf soybean prices declined beginning in mid-July on improving crop prospects, but have since risen 7 percent starting in late September. Brazil soybean prices are averaging 4 percent above U.S prices, which is below last month’s 8-percent.

EXPORT SALES

For the report ending October 31, 2019, U.S. soybean accumulated exports (shipments) to China totaled 2.5 million tons and 5.3 million to the rest of the world. Outstanding sales were 4.7 million tons to China and 3.8 million to the rest of the world. Last year at this time, accumulated exports to China were 339,000 tons and 5.9 million tons to the rest of the world, and outstanding sales to China were less than 600,000 tons and 6.6 million tons to the rest of the world. U.S. soybean export commitments (outstanding sales plus accumulated exports) to China totaled 7.1 million tons compared to less than 1.0 million tons a year ago. Total commitments to the world were 21.1 million tons, compared to 21.6 million for the same period last year.