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Tags: Soybean | Glut | Worsen | China

Soybean Glut May Worsen as China's Appetite Eases

Sunday, 16 June 2013 03:38 PM EDT

Soybean imports by China, the biggest buyer, may be lower than official U.S. forecasts, deepening a glut and weighing down prices as global reserves are set to reach a record.

Inbound shipments will be 63 million metric tons in the 12 months starting Oct. 1, less than the U.S. Department of Agriculture's June 13 projection of 69 million tons, according to the median of 14 estimates of China-based crushers and researchers by Bloomberg. Soybeans, which rose to a record $17.89 a bushel in Chicago during the 2012 drought in the U.S., slumped 14 percent this month and are in a bear market along with corn and wheat.

Demand for soybean meal for animal feed plunged in China April and May as farmers culled poultry following an outbreak of the H7N9 bird flu virus that led consumers to shun chicken, according to Tommy Xiao, analyst at Shanghai JC Intelligence Co., the nation's biggest agricultural researcher. Growth in cooking oil and meat consumption is slowing as economic expansion cools and the nation's new leadership frowns on lavish banquets and expensive meals.

"The USDA grossly overestimated China's demand," said Xiao, who forecast 60.5 million tons. While demand is stronger than it was at the height of the virus scare, full recovery will take several more months, he said by telephone on June 14.

Imports in the 12 months through Sept. 30 may drop for the first time in almost 10 years to 58 million tons, Bloomberg's survey showed. The USDA projects 59 million tons.

Goldman Sachs Group Inc. said in a June 13 report it expects soybeans to trade around $11 a bushel over the next three to 12 months. That compares with $13:035 at 4:36 p.m. Beijing time on June 14.

Dalian Futures

Soybean meal closed on June 14 at 3,238 yuan ($528) per ton on Dalian Commodity Exchange, extending this year's loss to 1.2 percent, while soybean oil lost 14 percent in 2013 to 7,408 yuan. The two contracts traded are derived from crushing of imported soybeans, while domestic soybeans in China are mainly for food consumption.

Morgan Stanley last week lowered China's economic growth estimate to 7.6 percent from 8.2 percent, joining banks including UBS AG and Barclays Plc in cutting estimates after weaker expansion in exports, industrial output and new lending last month.

The State Administration of Grain, which oversees the country's grain marketing and logistics, last month ordered staff to curb conspicuous food consumption, joining other ministries in echoing the top leadership’s drive to be more conservative in spending. Communist Party boss Xi Jinping in December urged officials to cut lavish receptions and live more frugally.

'Lackluster Economy'

"Meat and cooking oil use is slowing with the lackluster economy, and government officials aren’t dropping as much money on banquets and fancy restaurants," Xiao said.

Soybean output in the U.S., the world's second-biggest grower and exporter, will be a record 3.39 billion bushels in the season that starts Sept. 1, 12 percent more than a year earlier, the USDA said on June 12.

Worldwide soybean inventories will rise 19 percent to 74.04 million tons in the 12 months ending in September 2014, the biggest pre-harvest reserve ever, according to the average of 16 analyst estimates from an earlier survey compiled by Bloomberg.

Li Peng, managing director for investment at Beijing Ruigu Investment Co. and former head of research at the China unit of Louis Dreyfus, said imports would be about 65 million tons next year.

"In general we are bearish on the price outlook of soybeans," he said.

Consumption of cooking oil will probably stall this year after falling last year, said Gao Yanbin, Shanghai-based director of research at Jinshi Futures Co. Soybean oil and palm oil are mostly used in restaurants and catering, so a slowdown in the food-service industry will hurt demand, he said.

© Copyright 2023 Bloomberg News. All rights reserved.

Soybean imports by China, the biggest buyer, may be lower than official U.S. forecasts, deepening a glut and weighing down prices as global reserves are set to reach a record.
Sunday, 16 June 2013 03:38 PM
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